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. Last Updated: 07/27/2016

Kasyanov, Big Oil Delay Export Strategy Decision

Prime Minister Mikhail Kasyanov met with the country's oil barons Wednesday to hammer out Russia's export strategy, but no definitive policy emerged.

Instead of deciding whether to extend crude export quotas, the government opted to create a working group -- headed by Energy Minister Igor Yusufov -- to deal with problems faced by the industry in the long term.

"There are, of course, problems that must be solved this year," Kasyanov said at the meeting. "They worry us all. Especially Russia's participation in regulating prices on international markets," Interfax quoted him as saying.

The Organization of the Petroleum Exporting Countries is heavily lobbying Russia to extend its self-imposed quota, which is scheduled to expire March 31. As world crude prices were falling, Kasyanov promised in December to hold back Russia's exports by 150,000 barrels per day to appease the cartel.

OPEC made its decision to scale back production by 1.5 million bpd -- in order to support prices -- contingent on cooperation from other major oil producers, which include Russia, Norway and Mexico.

After the meeting, Yusufov told journalists that Russia was strictly adhering to the quotas. Earlier this week, OPEC Secretary-General Ali Rodriguez said that the cartel's compliance now exceeds 85 percent. The International Energy Agency estimates that in January, OPEC pumped 890,000 bpd more than it said it would.

"A decision whether to curb exports will be made later, at a meeting with the oil companies, taking into account the condition of the crude market," Yusufov said.

At midday trading in London, the Brent benchmark blend fell $0.55 to $19.97 a barrel. No. 1 LUKoil fell 1.75 percent and No. 2 Yukos fell 2.73 percent in a flagging Russian stock market.

Russia -- the world's second-largest producer of crude -- exports more than 7 million bpd, and while the country has decreased its dependency on crude exports, 30 percent of the overall economy relies on the oil sector, Kasyanov said. Three years ago, 80 percent to 90 percent of the economy was dependent on crude exports, he said.

Whatever the government eventually decides, oil companies are caught between a rock and a hard place, analysts say. If Russia decides to lift export quotas, the price on international markets will undoubtedly plunge. If the curb on exports continues, there will be no relief in sight for the oil glut in the domestic market, where a barrel of crude trades for less than $4.

Rodriguez and OPEC President Rilwanu Lukman are scheduled to make their case to government officials March 3-5 during a visit to Moscow.

Oil companies that are planning for high production growth in 2002 -- such as Yukos and Sibneft -- say investment will go to waste if they have to cap wells. Once taken out of production, Siberian oil fields are expensive to rehabilitate. No. 5 Tatneft on Tuesday announced it would cap about 2,000 money-losing wells that produced 350,000 tons of crude per year.

To lessen its crude oil dependence, Russia needs to improve its refining capabilities and export more oil products, Yusufov said.