Faced with falling oil prices, Russia is preparing to announce that it will work with OPEC in coordinating a reduction in output, the minister of energy said Wednesday.
Earlier this fall, a Russian official floated the idea of storing oil, rather than exporting it, to help the Organization of the Petroleum Exporting Countries stabilize prices, but this is the first time that the Kremlin has offered to reduce output.
By Andrew Kramer
The New York Times
Workers weld a first juncture of the Eastern Siberia-Pacific Ocean pipeline in Siberia’s Tynda-Skovorodino region, eastern Russia, October 2006. Russia said Wednesday it would announce proposals to reduce its oil output by December 17, signalling the energy superpower’s readiness to cooperate with OPEC to prop up falling crude prices.(AFP/File/Str)
World oil prices, which have been slumping around $40 a barrel, rose in response to the comments by the minister of energy, Sergei I. Shmatko, in early trading in New York Friday. Oil settled at $43.10 a barrel, up $1.03.
Mr. Shmatko said that by Dec. 17, the date of the next scheduled OPEC meeting, Russia will announce a plan to reduce the country’s oil production, the Interfax news agency reported. The minister offered no details of how this would be done, or how much oil might be taken off the market. Mr. Shmatko said Russia would also seek to persuade other non-OPEC producers to reduce output. A spokeswoman for the ministry declined to elaborate.
While formally at arms length, Russia and OPEC have flirted over some form of cooperation through the fall.
It is development sure to alarm consumers, who where just breathing a sigh of relief as American gasoline prices dipped below $2 a gallon. It is unclear, however, how much effect Russia’s increasingly anti-Western government might have on prices.
The Russian oil sector is a blend state-owned and private companies including a major joint venture with BP, the British oil giant, that would have to answer to stockholders for a reduction in revenue caused by a drop in output. Producing and transporting oil is costly in Russia and idling pipelines and fields could severely damage the industry.
Typically in oil price slumps, Russia and the Soviet Union before it has continued to pump oil freely, benefiting from the support for world oil prices provided by OPEC’s members, while not sharing in the financial loss of cutbacks. Norway and Mexico also benefit from OPEC while not belonging to it.
Other non-OPEC countries, meanwhile, have rejected any cooperation with OPEC. A spokesman for the ministry of petroleum and energy in Norway, the world’s fifth-largest oil exporter, said Wednesday that his country would not cooperate with the cartel, regardless of Russia’s decision, Bloomberg news reported.
In this fall’s steep drop off in oil prices, Saudi Arabia had been pressuring non-OPEC countries, particularly Russia, to cooperate. Russia pumps about 9.8 million barrels of oil a day, the second-greatest output in the world after the Saudis, and exports about seven million barrels of crude oil and refined products, mostly to Europe.
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