OPEC shaken, not stirred, by Russian glut Friday, 7 September 2001 19:46 (ET)

OPEC shaken, not stirred, by Russian glut By SAJID RIZVI

LONDON, Sept. 7 (UPI) -- The spectacle of rising Russian crude oil exports has presented OPEC ministers with a problem most of them no doubt wish they never had.

It's a lot of oil, too -- some 5 million barrels a day of crude and product exports by pipeline and sea. That's equal to the July production of Indonesia and Iran put together. Most baffling of all, Russian oil has been flowing abroad for more than half a year, yet its actual volume has only been spotted in the past few weeks.

The Paris-based International Agency's August oil market report said Russia's crude oil output had been at record levels since February, but in many other trade analyses the dramatic increase went unnoticed. The June figures cited by the IEA were an eye-opener, though some of the increase may be put down to seasonal shifts.

In that month, Russian crude and NGL production exceeded 7 million barrels a day for the first time since the collapse of the Soviet Union. Of that, Russia exported almost 5 million barrels a day. Almost all major oilfields contributed to the increase, the Sakhalin II Project off the Sakhalin Island up to 90,000 barrels a day in June.

Coupled with Iraq's resumption of crude oil production and exports, the Russian actions spell trouble for OPEC. After enjoying relative influence over the production and exports of both OPEC and non-OPEC countries, including Mexico, Norway and Oman, the Vienna-based group risks being outflanked by two major producers who are both outside its output quota regime.

Iraq is a member of OPEC, but is excluded from the output quota system while it sells oil under a United Nations-administered program, part of the sanctions in force since its 1990 invasion of Kuwait. According to OPEC sources, senior aides have been trying for months to persuade Russia to exercise restraint in its crude oil production program. The apparent rebuff delivered by Moscow is particularly surprising because in recent months Russia has been trying to resume the mantle of diplomacy abandoned after the Soviet collapse.

Opinion within OPEC over Russian actions remains divided, according to these sources, with the traditionally pro-West countries advocating an immediate withdrawal of Russia's observer status at OPEC ministerial conferences.

For years Russia, Mexico, Norway and other non-OPEC countries have been attending OPEC price and production strategy meetings as observers and generally keeping a low profile. Now, however, the mood is changing, partly because of fears that Russian actions may undo gains made by OPEC in engineering a recovery of the oil price over the past two years.

Russia's action was seen as untimely in OPEC because it coincided with the group's pledge to reduce production by a million barrels a day from Sept. 1 in a bid to shore up prices. OPEC fears are further compounded by a growing realization that members who adhered to production cuts in the past are less likely to apply further cuts when they see non-OPEC countries moving in to fill the gap.

The 11 OPEC members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela -- produce about 40 percent of the world's oil and hold more than 77 percent of the world's proven oil reserves. But they have a tough potential rival in Russia, the largest non-OPEC producer outside the United States.

OPEC sources believe that Russiašs unrestrained crude oil production may be part of an elaborate diplomatic effort to win back influence in the Middle East, seat of the majority of OPEC players. Be that as it may, it has given OPEC a jolt it least expected. -- Copyright 2001 by United Press International.

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-- Martin Thompson (mthom1927@aol.com), September 07, 2001