OPEC, Russia commit to continue cooperation

Moscow (Platts)--29Oct2004

Russia and OPEC are united in the desire to see order and sustainable
stability on world oil markets, officials attending an international workshop
organised by Moscow's MGIMO university and OPEC said Friday. "OPEC countries
are impressed by advances in the Russian oil sector which has grown into a
more formidable force in the past five years," Dr Maizar Rahman, Indonesia's
representative at OPEC said. "There is an understanding between OPEC and
Russia that prices must be stabilised at a level acceptable to producers and
consumers alike," Rahman said. However, this understanding does not mean
obligation, he added. OPEC and Russia would achieve their common goals via
"cooperation and dialogue," he said. "There is plenty for us to do here," he
added. Russia, which with oil output now above 9-mil b/d, is the world's
biggest producer after Saudi Arabia, has repeatedly turned down invitations to
join OPEC, but attends meetings of the organisation as an observer.

Active cooperation began in early 2003, the Russian government bow to pressure
from OPEC and ordered a 250,000 b/d cut in pipeline oil exports to help stave
off a threatened collapse in world oil prices. Some observers complained that
the cut was not fully implemented and blamed Russia for being a price taker.
OPEC and Russia "share much in common" when viewing the world oil market,
Rahman said Both are concerned to ensure that market fundamentals are sound so
that sufficient production capacity is available to meet demand. And there is
a common desire to ensure that the market is "less exposed to excess
speculation in future". Officials from both sides concurred that rising
demand, particularly in China and India has driven up prices. And a shortage
of refinery capacity worldwide to process sour Middle East and Russian crudes
is limiting producers' ability to respond to that demand growth. Other, non-
fundamental factors aggravated by speculation are also contributing to the
price surge including geopolitical uncertainties, hurricanes and bad weather.

"The market is very sensitive to bad news and not sensitive to good news,"
said one Russian commentator. Not all OPEC members are convinced that Russia
will continue to boost production fast enough to undercut overheated world
prices. Russian output is climbing by an impressive 10%-11% a year and some
companies like Yukos and Sibneft have clocked up annual production increases
of twice that. But most incremental oil is coming from brown field
developments said Abdulaziz al-Khowaiter, planning/analysis specialist at
Saudi Aramco. He predicted that Russian production growth might shrink to 3% a
year by 2005 or 2006. Construction of a big new export pipeline like the
planned system to Nakhodka on the Pacific would allow more Russian oil onto
world markets. But that line won't be built until 2010, if then, he said. The
Russian government may opt to restrain production to conserve resources or to
ensure that any looming decline occurs moderately. "This is a big political
discussion for people in charge," he said.

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