Russia wants closer links with OPEC

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Monday 8:27, March 16th, 2009

Russia, the world’s leading independent oil exporter, on Sunday proposed a list of measures to support oil prices, calling for lower output from all producers as part of the plan.

Deputy Prime Minister Igor Sechin outlined the wide range of ideas to OPEC oil ministers ahead of their production meeting in Vienna, and pledged to join in any possible output cut agreed by the group.

“We are monitoring OPEC’s work and our companies will also participate in a cut,” Sechin told reporters on the sidelines of a meeting of the Organization of the Petroleum Exporting Countries. “The volume of that cut will depend on the market situation.”

Greater coordination among producers would cause concern among oil-consuming nations, particularly those in Europe that were affected by disruptions to Russian gas supplies earlier this year. Russia is the largest non-OPEC crude producer in the world and is second only to OPEC’s leading exporter Saudi Arabia.

After oil prices fell sharply at the end of 2001 Russia, together with other leading non-OPEC producers Norway and Mexico, pledged to cut back supplies along with OPEC. In the event, non-OPEC’s contribution was unconvincing.

Sechin, according to a text of his speech to the OPEC ministers, said that his country’s oil production in January and February 2009 fell 1.9%, or 1.5 million tons, from the same period a year earlier. Although Sechin said Russia had already played a part in helping OPEC to cut supply this year, analysts have said Russian production was falling because of a lack of investment in infrastructure and not because of a deliberate policy.

“At the end of the day, it does not help OPEC clean up total oil inventories,” David Kirsch, director of market intelligence services at Washington-based PFC Energy, said of the Russian measures. “It’s really just a show game.”

SUPPLY CUTS

OPEC has promised supply cuts totaling 4.2 million barrels per day from output since September and the group is roughly a million bpd away from that target. The curbs have helped to stabilize oil prices above $40 a barrel after a dizzying $100 drop from a record high in July 2008.

OPEC ministers are in Vienna to decide whether to cut production further, or to ensure members comply more strictly with current quotas. Apart from lower output from OPEC and non-OPEC producers, to try to raise the price, Sechin also outlined technical measures.

They included longer term supply contracts, more sophisticated benchmarks and currency references as well as larger oil inventories in producer countries.

“The development of events in the global economy pushes oil-producing countries to act jointly to not only decrease the oil production,” Sechin said in his speech. “The risk of a further decrease of the oil price is unfortunately extremely high.”

He also repeated his plan of hosting a gathering of oil producers in Moscow at the end of the year. Russia’s energy ministry and OPEC should also sign a memorandum of understanding, Sechin said, adding that Russia might send a permanent representative to OPEC’s Secretariat in Vienna.

Sechin was leading a Russian delegation which also included Energy Minister Sergei Shmatko. Russia regularly attends OPEC meetings as an observer along with other producers from outside the group. (Reuters)