An enlarged OPEC would control 51 per cent of world output and could do away with oil futures.
OPEC could 'define oil price' with Russia, says minister
Russia should join OPEC so the oil exporters' group could dictate the price of oil, a senior executive of the country's second-largest oil producer said yesterday. An enlarged OPEC including Russia would control 51 per cent of world output and could do away with oil futures by returning to fixed contract prices, said Leonid Fedun, the vice president of Lukoil. "We could define the price precisely. We could decide that tomorrow the oil price would be US$100 per barrel. Unfortunately, Russia's political leaders did not go this route," he said in an interview published in Russia's Kommersant newspaper. He added: "Russia should join OPEC and move to direct contracts. Then we will jointly control 51 per cent of world output and we can dictate the price by directive."
In March, the OPEC secretary general, Abdulla el Badri, said the group would welcome Russia as a member. However, its relations with Moscow have soured in recent months, after Russia failed to reduce its oil exports in solidarity with OPEC efforts to stabilise oil markets through record output cuts equivalent to about 5 per cent of world oil supply. Analysts said the OPEC cuts had been subsidising Russia's oil-fuelled economy by supporting crude prices.
Yesterday, crude slipped below $70 per barrel, following lower equities markets as investors weighed mixed economic signals. Oil prices this week have fallen from eight-month highs of near $73, amid signs that the US economy remains fragile. But they remain at roughly twice their level at the beginning of this year after a record plunge from $147 per barrel last July. Russia, which had been sending high-level observers to OPEC meetings, was not invited to the group's latest ministerial meeting on May 28 in Vienna. But it would refresh ties with OPEC at a meeting in July, Igor Sechin, the Russian deputy prime minister, said earlier this month.
"We are continuing co-operation with OPEC and there is a proposal to hold a joint seminar on co-operation between OPEC and the (Russian) energy ministry," he said. Sergei Shmatko, Russia's energy minister, said the meeting could take place either in Moscow or Vienna. Still, Mr Sechin told reporters that Moscow had no plan to cut oil production in the next three years, although output could fall if producers failed to make the necessary investments.
Mr Shmatko said that at current prices, there was no economic basis for cutting exports, especially with oil demand from China and India continuing to rise. Russia, which at times pumps more crude than Saudi Arabia, is the world's biggest oil exporter outside OPEC. Last year, its oil production averaged 9.9 million barrels per day (bpd), of which 3.5 million bpd were exported, according to industry estimates.
Russia is planning to increase crude exports to China, and in February secured US$25 billion (Dh91.81bn) in loans from Beijing in exchange for 20 years of supplies through a new trans-border pipeline from oilfields in eastern Siberia. China and other emerging economies in Asia are concerned that they will not be able to obtain enough oil in coming years from their traditional suppliers in the Gulf region.
Oil exports from the Middle East are unlikely to rise above last year's level between now and 2015, because the region will consume more of its crude output in its own refineries and power plants, the consulting firm FACTS Global Energy said yesterday. "The volume and quality of incremental crude capacity coming online in the Middle East will closely match the planned additions to local refining capacity," Vijay Mukherji, an analyst based in London, said in a report. "As a result, there is likely to be intense competition for Middle East crude.
"Asian countries will have to go elsewhere, such as West Africa, Latin America and non-OPEC countries, for crude that won't necessarily match the configurations of their refineries." Crude production from the Middle East reached 22.9 million bpd last year and is expected to rise by 2.3 million bpd to 25.2 million bpd in 2015, according to FACTS. But the region's expanding refining and power sectors would absorb most of the increase.