Shmatko Warns on Oil Output

TARKO SALE, Yamal-Nenets Autonomous District — The world is heading toward a sharp deficit of oil production capacity, and the country's companies could cut output and exports should they become unprofitable, Energy Minister Sergei Shmatko said Tuesday.

"Oil companies should decide themselves. If it's unprofitable, then they could decide to lower production," Shmatko told reporters in the northern Yamal-Nenets autonomous district when asked if Russia could join OPEC's oil output cuts.

Shmatko also said he believed that the price of oil should be higher than $60 a barrel to suit both consumers and producers.

"Almost all OPEC members … probably with the exception of Saudi Arabia, are seriously unhappy about the current oil price levels. … The situation today is that many countries are on the brink of production profitability," he added.

"And we expect — and this is our joint opinion with OPEC — that if it continues that way, then we will not only face a substantial cut in oil supplies to the world's markets in the mid-term, but also a drop in production capacities," he said.

Urals crude has been trading below $50 per barrel since last week, while the government's budget is balanced at $75 for this year and $95 for 2009.

LUKoil has called on the government to join OPEC and its oil output cuts, but government officials have said the country would maintain independent policies.

Shmatko did not directly answer questions about whether Russia would consider joining OPEC's output cuts as it briefly did at the start of this decade.

"A cut is a serious issue. We are analyzing the mood on the oil market, and I can say that the current supply level is not the only factor [that should influence the market]," he said.

"Our strategy consists of checking our investment programs together with other producers and showing the market that a substantial drop in production is possible if there are no fair prices," he added.