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Thursday, December 18, 2008

Azerbaijan, Not Russia to Cut Output

azerbaijan flagReuters by Dmitry Zhdannikov - Ex-Soviet Azerbaijan became the only non-OPEC producer on Wednesday to offer a real output cut to support oil prices, while Russia refrained from making firm commitments despite previous declarations that it would. Azeri Energy Minister Natik Aliyev told reporters on the sidelines of an OPEC meeting in the Algerian town of Oran the country was ready to cut output by 300,000 barrels per day to 540,000 bpd, which will be its lowest output level in two years. "We have production capacity of 1 million bpd, but currently output is reduced to 840,000 bpd and we are ready to cut further to 540,000 bpd and sustain this production for several months," Aliyev said. Most of Azeri oil output is controlled by a BP-led consortium, which reduced production in the past months due to technical problems at an offshore platform in the Caspian Sea. Saudi Arabia's Oil Minister Ali al-Naimi told Reuters on Tuesday producers outside OPEC could cut 500,000-600,000 bpd along with any curbs agreed by OPEC at its meeting on Wednesday. Top non-OPEC producers Russia, Mexico and Norway signed up to production curbs with OPEC in 2002 to help shore up oil prices after they fell below $20. But after Norway and Mexico said they had no plans to join production cuts this time, oil markets focused on Russia, which like many OPEC members badly needs a price of above $70 per barrel to protect its economy, currency and social stability. Russia's President Dmitry Medvedev said last week Moscow was not ruling out joining production cuts and even the Organisation of the Petroleum Exporting Nations. Moscow also sent the highest-ranked delegation ever to an OPEC meeting this week, chaired by Russia's top energy official Igor Sechin and the heads of all five top national oil firms. Sechin told OPEC delegates on Wednesday Russian oil firms could extend oil export cuts in 2009 after having already cut deliveries by 350,000 bpd in November.
RUSSIAN EXPORT ALREADY DOWN: Russian exports fell to 3.7 million bpd, the lowest level since 2004, after the government kept a very high oil export duty which made exports loss-making and encouraged companies to refine more at home and focus on exports of refined products. But Sechin said nothing about immediate oil output cuts, only warning an extended period of oil price weakness would reduce capex. "If current prices on the global oil market prevail, Russian oil firms will be forced to cut the volumes of supplies next year by 16 million tonnes (320,000 bpd)...," he said in a speech to delegates, the text of which was obtained by Reuters. "(They may) also cut investments which may in the near future lead to a much sharper decline in production." Russian oil output is poised to decline by around 1 percent this year, the first time in a decade during which output of the world's second largest oil exporter rose by more than 60 percent to approach the landmark 10 million bpd level. Many analysts and industry insiders say production may decline by a further 2-3 percent next year and have been predicting that Moscow could try to repackage a natural decline in production as a coordinated cut with OPEC. Sechin also said Moscow was not seeking OPEC membership status but wanted to become a permanent observer. "There are different kinds of cooperation with OPEC and we have already made such proposals to OPEC," he told Reuters. "We are ready for close cooperation, coordination but all must progress step by step," he added.

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