OPEC and Russia in talks on second-quarter market-stabilization measures

No 1/2002
Vienna, Austria
01 Mar 2002

A top-level OPEC delegation is to begin two days of talks on Monday (4 March) with their Russian counterparts on measures to ensure stable and reasonable oil prices during the second quarter of this year.

OPEC President Dr. Rilwanu Lukman, Secretary General Dr. Alí Rodríguez Araque and Director of Research Dr. Adnan Shihab-Eldin, will urge senior Government and energy officials, from the world’s second-largest oil-producing nation, to extend its policy of restricting crude oil exports into the second quarter. This will be to maintain market stability, in view of the expected seasonal weakness in the next three months.

Late last year, Russia, along with some other leading non-OPEC producers, offered strong support for OPEC’s market-stabilizing initiatives, by agreeing to cut its crude oil exports by 150,000 barrels a day, with effect from 1 January. However, Russia indicated that its decision covered only the first quarter of 2002, but that it would review prevailing market conditions before deciding whether to extend export restrictions to the middle of the year.

“We welcome the contribution that Russia and other non-OPEC producers are making towards stabilising oil prices,” Shihab-Eldin said recently. “This is exactly the kind of cooperation we in OPEC are attempting to foster.” He maintained that the welfare of the international oil market was the responsibility of all producers.

During the talks, OPEC will review, with Russia, its oil market outlook, especially the supply and demand balance, and will seek to ascertain what action Russia plans to take during the second quarter.

“It is imperative that the cuts already in place are continued into this period, to ensure that a concrete floor remains firmly under prices ahead of the summer months, “ Shihab-Eldin added.

Earlier this week (27 February), Conference President Lukman welcomed a decision by the Government of another leading non OPEC producer, Norway, to carry over its first-quarter commitment to cut output by 150,000 b/d to the second quarter.

“In taking this action, “he said, “Norway will be greatly supporting OPEC’s efforts to balance global supply and demand, which is necessary for stabilising crude oil prices.”

If other leading non-OPEC producers followed Norway’s example, “a concerted and coordinated effort can be sustained in the market, at least for the first half of this year,“ Lukman added.

There is, however, a growing consensus among forecasters that the world economy will begin to recover in the second half of this year, increasing the call on oil and triggering a rebound in prices.

“Cooperation is necessary to maintain stability in the market until well into 2003, by which time sufficient demand may have developed to allow both OPEC and non- OPEC producers to relax reductions,” says Secretary General Rodríguez Araque.

Other visits to Moscow are planned by senior officials from OPEC Members Algeria and Venezuela, in the build-up to the forthcoming Meeting of the OPEC Conference, which begins on 15 March in Vienna, Austria.

Background information

OPEC reduced production by a total of 3.5 million b/d last year, in a bid to stabilise the oil market, which was then thrown into turmoil by the events of 11 September. Within a month, the price of OPEC’s Reference Basket had fallen by around US $5 per barrel from the near-$25/b average of the first eight months of 2001; further falls in the ensuing weeks took the price briefly below $17/b.

OPEC’s Conference in mid-November agreed to cut output by an additional 1.5 mb/d for six months from 1 January 2002 – making a total reduction of 5 mb/d – but only if non-OPEC responded with a commitment to a total cut of ten per cent of that figure. When non-OPEC finally made such a commitment, to the tune of 462,000 b/d, OPEC implemented its new agreement.

This eased the pressure on prices. So far this year, the Basket price has averaged around $18.5/b, well above the averages for November and December.