Oil Showdown Set, Markets Await Cut

Prime Minister Mikhail Kasyanov will meet top oil executives Wednesday to discuss possible cuts in exports and output of crude, with markets eagerly waiting to see if Russia will help OPEC to support prices.

The spokeswoman for Kasyanov said Tuesday the prime minister and oil firms would meet to discuss whether Russia, the world's second largest oil exporter, would decide on deeper cuts than the 50,000 barrels per day it has offered.

"The question is of the possibility of reducing exports of oil in the first quarter of 2002 in relation to the fourth quarter of 2001," spokeswoman Tatyana Razbash said.

Energy officials and oil executives continued to haggle Tuesday on what steps to take, both sides sending confusing signals to markets.

Several Russian oil firm executives said they had been informed that the Energy Ministry could propose a huge 380,000 bpd cut in output for December.

But officials from other ministries and analysts played down the idea, which appears to be a negotiating point.

"There is no sense at all in this figure," a senior government official said, adding it was too high.

Analysts and oil firms also saw little chance for such a proposal to make headway and said Kasyanov might not even raise it at the talks.

"The month has already begun and I don't see how companies can stop the oil from flowing. I hope Kasyanov understands this as well," an official in one of Russia's major oil firms said.

A preliminary schedule shows Russia expects to produce 30.6 million tons of crude, or 7.24 million bpd, in December 2001. A cut of 380,000 bpd would be a 5 percent drop in this amount, much more than the usual seasonal decline.

"The cut seems to be unrealistic. Usually, we can expect a 1 or 2 percent drop in oil output due to the winter season factor," said Alfa Bank oil analyst Konstantin Reznikov.

Russia is under pressure to help oil cartel OPEC support world crude prices by offering to increase output and export cuts, but has offered only a tiny 50,000 bpd reduction in output for the fourth quarter.

It said last week it might decide on deeper output cuts from January 2002, the period that matters to OPEC.

Industry sources said that oil product exports could become another key point during the meeting as oil firms would require ways of compensating for cutting crude exports. A source close to the Finance Ministry said government officials held an extraordinary meeting Tuesday to consider a proposal on cutting export tariffs for oil products.

"[Economic Development and Trade Minister] German Gref promised oil companies to consider the question urgently," the source said.

He said that the fuel oil export tariff could fall to 16.4 euros per ton from the current 20 euros while the gas oil export tariff could be lowered to 32 euros from the current 39 euros per ton.

Oil companies confirmed that oil products were also on the agenda.

"One of the proposals from oil firms was the revision of quotas and export tariffs for oil products if the government decides to cut crude oil export," a source in one of the major oil firms said.