Crude Feud Sends Markets Tumbling
By Anna Raff
themoscowtimes.com
Prime Minister Mikhail Kasyanov on Thursday called a major oil production cut "impossible," stoking fears of a price war with OPEC that sent crude markets tumbling along with Russia's domestic currency and stock markets.
"We are not going to at any time reduce production on a big scale, it's impossible," said Kasyanov, who is in Spain on an official visit.
December Brent futures were down $1.15 to $17.60 a barrel in late trading, recovering from a $16.80 low, a level unseen since June 1999. Russia's benchmark Urals blend usually trades at about a $1.50 discount to Brent.
Russia's oil blue chips all posted losses and drove the Russian Trading System's index down 6 percent. LUKoil led the descent, closing 8.6 percent lower at $11.22, followed by Surgutneftegaz, down 8.4 percent to $0.24 and Yukos, which fell 4.5 percent to close at $4.06.
On the currency exchange the ruble fell to a new low of 29.76 to the U.S. dollar as the Central Bank gave it little support to counter pressure sparked by concern over oil prices.
As the world waits apprehensively for some sort of resolution between OPEC and major non-cartel exporters, Russia's top oil companies are divided on policy.
"If we start talking about a cut of 100,000 or 200,000 barrels per day, this will mean huge losses for Russia," Yukos CEO Mikhail Khodorkovsky told a news briefing Thursday.
An OPEC meeting in Vienna on Wednesday ended with a decision to cut exports by 1.5 million barrels per day only if other non-OPEC producers -- mainly Russia, Norway and Mexico -- support the cartel by making cuts on their own.
While Khodorkovsky advocates a lower price corridor, $16 to $22 per barrel for Brent, LUKoil vice president Leonid Fedun said a jump in prices is more effective than an increase in exports for all countries involved.
Fedun said a cut of up to 300,000 bpd was technically feasible. LUKoil president Vagit Alekperov predicted that the price of oil would swing back up to about $27 per barrel in an interview published in Nezavisimaya Gazeta on Thursday.
"A coordinated decision about production cuts needs to be made as soon as possible so we can adjust next year's investment programs," Fedun said.
The opposing stances taken by Russia's top two oil companies underscore their corporate philosophies as well as their business models. No. 2 Yukos is primed for more growth next year, while LUKoil's production figures are beginning to level off.
But oil companies aren't the only ones in disagreement on how to avoid a costly price war with OPEC. Government officials on Thursday offered varying opinions that ranged from a hint at reconciliation to an outright "no" to more oil cuts.
In the days leading to Wednesday's OPEC meeting, Russia offered to cut 30,000 bpd of its 7 million bpd total, but Saudi Oil Minister Ali al-Naimi was far from satisfied with what analysts called a purely token gesture.
"Russia's cut is minuscule and disappointing and we don't take it seriously," Naimi said in remarks reported by Reuters. "We've made a very, very reasonable request. Russia's position is extremely unreasonable."
OPEC has already cut production three times -- a total of 3.5 million bpd -- this year in efforts to keep oil prices high.
Sensing OPEC's displeasure, Deputy Prime Minister Viktor Khristenko backed down from his intransigent statements made in the hours after OPEC reached its decision.
"We have not excluded and have never broken off the system of consultations with OPEC member states about a stable oil market," Khristenko told reporters in Baku.
On Wednesday, he said OPEC had to right to make "sharp demands" of Russia.
Finance Minister Alexei Kudrin echoed Khristenko's sentiments, saying that Russia must work with OPEC to find a solution acceptable to both sides although the process is more challenging than the government first assumed.
"I think we'll be able to work something out in the end," Kudrin told Interfax.
The world's second-largest exporter after Saudi Arabia, Russia depends on oil for 40 percent of its budget revenues. The current draft budget sets $18.50 per barrel of Urals blend as the break-even point. If about $5 billion for the reserve fund were wiped off the budget, that break-even point would drop to $15 per barrel. And if the price of oil goes below that, Russia will have to look for external financing.
The time is ripe for Russia to reach a new consensus with the United States and Europe, not only OPEC member nations, Khodorkovsky said. With the Middle East political situation still unstable, Western nations would be willing to keep the price of oil above $16 to ensure a diversity of supplies -- including oil from Russia. |
