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. Last Updated: 07/27/2016

OPEC Threatens to 'Flood Market'

OPEC threatened a full-blown price war Tuesday, warning of a "catastrophe" in the oil market and vowing to "flood the market" with crude if Russia didn't agree to further export cuts.

OPEC president Chakib Khelil warned in Algeria that if meaningful production cuts are not in place by January, "prices will collapse quickly," Reuters reported. "We can add production as well to exert additional pressure," Khelil was quoted as saying.

Oil prices have fallen by a third since Sept. 11, and OPEC plans to cut production by 1.5 million barrels per day in January -- but only if major non-cartel producers Russia, Norway, Mexico and Oman cut a combined 500,000 bpd.

While Norway, Mexico and Oman have indicated a willingness to cut a combined 300,000 to 325,000 bpd, Russia, the world's No. 2 producer after cartel proxy Saudi Arabia, has refused, offering only a symbolic cut of 50,000 bpd, or just 1.5 percent of its exports.

"It is critical to cut production by 2 million barrels per day, and 1.5 million will not be sufficient to stop the price decline," Khelil was quoted as saying. "It is neither in the interest of Russia or other countries in OPEC and non-OPEC that prices collapse."

Deputy Prime Minister Viktor Khristenko reiterated Tuesday that Russia will consider bigger cuts at a meeting with oil majors Dec. 10. Oil prices were boosted by Khristenko's statement and news that Norway wanted talks with Russia to urge it to take more steps to support prices.

Russian benchmark Urals traded up 4 cents to $17.77, while global benchmark Brent futures for January delivery climbed 74 cents, or 4 percent, to $19.10 per barrel by late afternoon in London. U.S. oil gained 99 cents to $19.68.

Analysts said that OPEC's threat was an expected escalation of an already-bitter dispute and a way for the cartel to exert pressure ahead of the Dec. 10 meeting that will clarify Russia's position.

"It's a continuation of the war of nerves," said Leonid Mirzoyan, oil analyst with Deutsche Bank. "It is possible that OPEC could indeed increase output, but I doubt that would be for any considerable length of time," he said, adding that he expected "such 'preparatory bombardment' to continue in the coming days."

Mirzoyan said Russia has demonstrated its readiness to find a compromise between producers and consumers, but "ultimatum-like demands from other producers do not help much."

A special government commission on the issue headed by Khristenko began working Tuesday. So far, the commission has looked at the compliance of oil producers to the 50,000 bpd export cut, Interfax reported. Another possibility, put forward by the Tax Ministry, is to limit export quotas for some 25 oil companies that owe back taxes.