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Reduced oil output favoured

Reduced oil output favoured
Russia announced Sunday that it is cutting oil exports.

Russia announced Sunday that it is cutting oil exports.

Russia announced Sunday that it is cutting oil exports. Russian Deputy Premier Igor Sechin spoke to oil ministers of the Organization of the Petroleum Exporting Countries before they decide how best to support prices without sending a new shock through economies of major consumer countries battling with the fallout of the financial meltdown.

Most members of the 12-nation organization have been clear in favoring reduced output in the days preceding Sunday's full meeting.

Still they were leaving open whether they want to lower output quotas -- or if they favor a solution less likely to hurt the struggling global economy by seeking to end overproduction by some nations above levels allotted to them.

Sechin also said that sending a permanent Russian observer to OPEC was under discussion. Moscow first floated that idea late last year.

Any sign of closer cooperation between Russia and the Organization of the Petroleum Exporting Countries is closely watched because of the potential it has on influencing the amount of supply available and its price.

Russia is the world's second largest producer of crude -- after OPEC powerhouse Saudi Arabia -- and OPEC has repeatedly called in recent months on the Russians to cooperate as it seeks to bolster prices that fell to the low $30s a barrel after summer highs close to $150.

Still Sechin's comments appeared to be mostly symbolic, indicating Russia was in no hurry to give up its energy independence.

He was quoted by Russian news wires as saying that Moscow "will think about" joining OPEC only if the producers' club implemented all other agreements with his country, without going into details.

And his comments on cutting production also had to be seen in context, with the view prevalent that Russian output is falling not out of choice but necessity.

Russia will "be cutting oil exports while increasing domestic consumption and expanding oil refining, said Sechin, adding that his country also would delay the development of two oil fields in the northwest.

And he told the OPEC meeting that Russian oil production had already decreased by 1.9 percent in the first two months of the year.

The cuts appeared to be a way of dressing up Moscow's inability to keep up present output levels because of lagging investment that is expected to result in an output decline of around 2 percent this year.

At its peak in early 2008, Russia was producing 9.5 million barrels of crude a day.

One focus of the OPEC meeting is individual member compliance with cuts agreed on since September that were meant to take a daily 4.2 million barrels off the market. The 11 members under production quotas are still overshooting their joint daily target level of just under 25 million barrels by about 800,000 barrels a day.

There is general agreement within OPEC that supply has to be reduced. But before their meeting Sunday, oil ministers did not say how they should do it.

While slashing production could raise prices in the short term, it could also lead to further depressing demand, as struggling economies cut back on expensive crude they cannot afford. Pushing for full quota compliance instead would be less harmful.

Algerian energy and mines minister Chakib Khelil suggested he favored a combined "cut and comply" approach, saying world expectations were that OPEC would decide Sunday to take between 500,000 and 1.5 million barrels a day off the market.

But Kuwaiti oil minister Sheik Ahmad Abdullah Al-Jaber Al-Ahmad Al-Sabah suggested he favored compliance with present quotas before considering formally lowering production through setting lower targets.

"Every country should respect its quotas and stop overproducing," he told reporters.

OPEC regularly overshoots its quotas

OPEC regularly overshoots its quotas. But even if the group cannot fully meet its target, more discipline would lead to reduced world supply at a time of depressed demand, even if OPEC succeeds in taking no more than a few hundred thousand barrels more off the market.

That could be enough to raise prices moderately, without sending shock waves through shaky world economies.

Saudi Arabia and other Gulf states were thought to favor full compliance with present quotas through ending overproduction instead of lowered targets and a relatively strong comeback in prices could work to help them make their case.

Prices have rallied from below $35 a barrel last month, with a barrel of benchmark crude fetching over $46 a barrel on the New York Mercantile Exchange Friday. Earlier in the session, prices peaked at $48.14.


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