Russia hit by low oil price but sees no
conspiracy
08:09 a.m. Dec 29, 1998 Eastern
By Sebastian Alison
MOSCOW, Dec 29 (Reuters) - Russia is suffering
badly from low oil prices but does not believe in a
conspiracy theory which alleges some big producers
are holding prices down to squeeze marginal
producers, a fuel ministry spokesman said on
Tuesday.
''Currently there is talk of such a conspiracy going
round, but the Minister of Fuel and Energy thinks
there is little likelihood of such a plot,'' the spokesman
to the minister, Sergei Generalov, told Reuters.
''As far as Saudi Arabia, which has already been
forced to revise its state budget three times this year is
concerned, it's very unlikely that it's done this
deliberately,'' he added.
Oil prices have been hovering around 12 year lows in
recent months, and all producers are suffering.
Russia is awash with conspiracy theories which say
low-cost producers like Saudi Arabia are happy to
see low prices for a while, as this would force
high-cost producers such as Russia to scale back
output and boost market share for cheaper
producers.
Tuesday's Izvestiya newspaper said a prolonged
period of low prices would give a major edge to oil
exporters in the Arab world and Latin America over
northern competitors.
''If the price continues its fall for another year or two,
then the bulk of Russian and northern European oil
fields in Norway and Britain will become unprofitable.
Wells will have to be shut in,'' the paper said.
''To put these wells back into production will demand
significant investments, which Russia does not have,''
it added.
Russia is the world's third largest oil producer,
producing around six million barrels per day this year.
Oil and gas exports made up 48 percent of all its hard
currency export earnings last year, easily the biggest
sector of the economy.
But the distance of its oil producing heartland in
western Siberia from international markets makes its
production expensive, and so particularly vulnerable
to price slides.
Eugene Khartukov of Moscow's International Centre
for Petroleum Business Studies said the cost of
delivering Siberian crude to Europe's main oil trading
hub at Rotterdam was up to $8.00 per barrel.
This was made up of production costs of around
$4.00 per barrel, including ''social costs'' -- the costs
of providing services to employees and their families
in remote areas -- and excise duties of around $0.35
per barrel.
Other costs included transit through the Russian
pipeline network at around $1.50 per barrel; transit
costs across Belarus and Latvia to the oil terminal of
Ventspils, and the port fee at Ventspils, totalling some
$0.80 per barrel.
The final element, he said, was the freight cost of
some $0.90 per barrel from Ventspils to Rotterdam,
giving a combined total of at least $7.20, and often
higher depending on variable factors such as the
freight cost.
Russian Urals export blend crude was assessed at
below $9.50 per barrel on a delivered Rotterdam
basis on Tuesday, meaning margins are already
wafer-thin at current prices. If prices dip further, the
margins could become negative.
Kuwaiti oil minister Sheikh Saud Nasser al-Sabah
warned on Monday that prices could drop to $5 per
barrel if big producers did not scale back production.
Even at this price Saudi oil would still be profitable,
explaining why some see a Saudi conspiracy.
Khartukov said Saudi Arab Light crude cost no more
than $1.00 per barrel to produce and some $1.10 per
barrel to ship from the Gulf to Rotterdam, giving a
delivered cost of little over $2.00 per barrel -- a
quarter of Russia's cost.
But Saudi oil minister Ali al-Naimi has consistently
denied pursuing a low price policy, asking reporters
recently: ''How can reasonable people come to that
conclusion?''
((Moscow Newsroom, +7095 941-8520
moscow.newsroom+reuters.com))
Copyright 1998 Reuters Limited. |
