Will Russia coordinate an oil production cut with OPEC?
Posted Dec 10th 2008 1:30PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Russia, Middle East, Commodities, Oil
The oil market, which has seen the price of crude collapse from a leverage-driven $147 per barrel this summer to about $45, may experience another jolt if -- and this is a big if -- Russia agrees to cut production along with OPEC.
Russia, which in late November forwarded a draft memorandum on cooperation to OPEC, said it will announce proposals for reducing output by December 17, when OPEC next meets, Bloomberg News reported Wednesday, citing Interfax.
Russia is the world's second-largest oil exporter after OPEC member Saudi Arabia. A Russia-OPEC alliance, if it formed, would control about 45% of the world's oil supply.
Is $40 the new oil floor?
Economist Peter Dawson said Russia's actions could put a floor under oil's price, if other factors line up. Russia needs an oil price of about $75 this year to fund government operations, he said. Oil rose $2.29 to $44.36 per barrel in Wednesday morning trading.
"Assuming OPEC announces a two million barrel per day cut on December 17, if Russia decreases production by 500,000 per day that would remove some of the excess oil sloshing around in the system and slow the inventory build globally," Dawson said. "There's about 60% chance Russia will coordinate a production cut with OPEC." Russia produced about 9.8 million barrels of oil per day in 2007, he said.
