OPEC Urging More Cuts
OPEC restated Friday that the group won't act alone in reducing oil production in January, even if it were faced with an outright refusal by non-OPEC producers to cut output by 500,000 barrels a day from Jan. 1. "OPEC won't entertain any kind of crude oil output cut" from early January unless non-OPEC producers cut supplies by that amount. At its Nov. 14 ministerial meeting, OPEC said it would cut crude production by 1.5 million b/d from the beginning of January, on condition that non-OPEC producers Russia, Norway, Oman and Mexico reduce oil supplies by 500,000 b/d. OPEC does not have a contingency plan in place if non-OPEC refuse to cut production by 500,000 b/d. OPEC is adamant that non-OPEC countries reduce output by 500,000 b/d.
Russia, whose crude output currently stands at around 7 million b/d, said Friday it would cut oil output and exports by 50,000 b/d in the fourth quarter of 2001. The cut includes Russia's earlier offer of 30,000 b/d. OPEC has pinned its hopes on Russia contributing around 300,000 b/d to any cuts by non-OPEC producers. Norway and Mexico have both said they will only trim crude supplies if Russia acts, while Oman has said it will cut production by some 40,000 b/d.
Oil prices plummeted on the news that Russia wasn't prepared to make a more significant cut. At 1653 GMT, the front-month January Brent Blend contract was trading 83 cents down at $19.07/bbl on the International Petroleum Exchange. Earlier in the session the contract had hit an intraday low of $18.60/bbl.
"This is turning into a very serious issue...Russia's announcement that it will cut just 50,000 b/d is ridiculous and inevitably prices are going to suffer," said one OPEC source. But, however serious it may consider the situation, OPEC sources say the group won't act independently at this time and cut output.
OPEC Secretary General Ali Rodriguez has made it clear that it is impossible for OPEC to act alone. OPEC has already cut production three times this year, by a total of 3.5 million b/d, and is concerned that it will continue to lose market share to non-OPEC.
Global oil demand growth is expected to reach 600,000 b/d in 2002, according to the Paris-based International Energy Agency. Russia's crude production is expected to increase by some 700,000 b/d over the same period. "Realistically what can we do? ... OPEC can't and won't try to support prices alone," said one OPEC source. And although OPEC's price objective remains at $25.00/bbl for its basket price, one senior OPEC source said, "We will let prices fall to the point which triggers non-OPEC to cut."