The key issue is that Russians are refusing to go along with OPEC demands for a concerted drop in production, posing problems for the oil cartel.
OPEC oil ministers are scheduled to meet in Vienna on Thursday.
Russia does not belong to the organisation, but has become a prime mover on world petroleum markets, and there is not much OPEC can do about it, experts said.
“The sharp rise in Russian oil exports this year – which will continue next year – once again raises the question: ‘Is OPEC doomed?'” said Leo Drollas of the Centre for Global Energy Studies in London.
Russia is pumping about 8.6 million barrels of oil a day, compared to 7.96 million for Saudi Arabia.
This, Drollas said, was “changing the power structure of the
“Russia has no interest in collaborating with OPEC. It’s better off fighting another cold war with it.”
OPEC wants all oil-producing countries, whether or not they are members of the cartel, to reduce output in order to make way for exports by Iraq, which is expected to produce 3.5 million barrels a day within five years.
Without a cut in the production, the addition of Iraqi exports will create a glut in the market, making it difficult for OPEC to maintain the 25 dollars price per barrel, which it sees as a “fair price” for long-term market stability.
But the fact that benchmark Brent crude oil stands around 29
dollars a barrel, because of what OPEC calls temporary speculative pressures, gives Russia no incentive to curb its output. In fact, it is likely to increase production to 9.2 million barrels a day next year, according to Francis Perrin of the magazine Petrole et Gaz in Paris.
“Russia has no interest in collaborating with OPEC,” Drollas
said. “It’s better off fighting another cold war with it.”
“It’s the so called ‘free-rider syndrome,'” he added. “While
Russia refuses to cut production, OPEC has to do it if it wants to sustain prices, so Russia gets a free ride on production levels and high prices without giving anything back to OPEC.”
Frederic Lasserre, an oil industry analyst with Societe
Generale, said OPEC was caught in a vicious circle.
“To maintain a price of 25 dollars means it would have to reduce its offer,” he said. “The shortage thus created would be compensated by an increase in production by the non-OPEC countries, notably Russia, Mexico and Norway, which would cause the cartel to lose market share.”
OPEC has about 38% of the world market today, down from 41% in 1998 and this is likely to fall still further to
36% next year, according to an estimate in The Economist.
However, Lasserre said “the capacity of OPEC to fix prices is
more real than this fall in its market share would suggest”.
Faruk Ibrahim, head of communications at OPEC headquarters in Vienna, said nobody had an interest in a fall in prices.
“Without a fair price, investors will not invest and find new reserves. Our Russian friends have understood this perfectly,” he said.