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Bank Of America Investment Russia agreed today to reduce crude oil exports by 150,000 barrels a day, a decision that could prompt production cuts by OPEC members and other nations.

Tax is the major impediment, says Ms Redman. The government levies an export duty of 65% at prices over $25 a barrel. Add to that various corporate, payroll and production taxes, oilmen complain, and the state creams off as much as 92% of profits. BP have argued that rising costs across the oil industry will make many investments in Russia unprofitable unless the tax regime is changed. As it is, BP accounts for a fifth of BP’s production, but only a tenth of its profits..

Investment Opportunity The move appeared to break a monthlong deadlock with the Organization of the Petroleum Exporting Countries. The cartel announced last month that it would pare daily oil production only if non-OPEC nations like Russia, Norway and Mexico followed suit, a call that Russia had resisted until today.

In 2006, Ashgabat raised its natural gas export prices to its main customer, Russia, from $66 per thousand cubic meters (tcm) to $100 per tcm.

Banc Of America Investment Russia's cut, however, will exist largely on paper. The reduction in exports, to apply to the first three months of next year, coincides almost exactly with a seasonal lull in exports Russians use more fuel in winter and will not, ultimately, reduce the surge in Russian production.

Banking Investment "This is putting a public relations spin on something that was going to happen anyway," said Stephen O'Sullivan, head of research at the United Financial Group (news/quote), an investment firm in Moscow. "It is as much as Russia can offer painlessly, and they won't accept any pain in Russia." In the last three winters, he said, daily exports of crude have dropped by about 130,000 barrels a day.

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Investment Solution Strategic Moscow's announcement did little to oil prices, which have been restrained by signs of large inventories and slumping demand in industrial countries. Oil prices rose modestly in London after the Russian cut was announced. By the end of trading in New York, crude oil was down 16 cents, at $19.49 a barrel.

Facts and Numbers. Part 5 Economy Russia ended 2003 with its fifth straight year of growth, averaging 6.5% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than 10% over the last four years and real personal incomes have averaged increases over 12%. Russia has also improved its international financial position since the 1998 financial crisis, with its foreign debt declining from 90% of GDP to around 28%. Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $80 billion.

Investment Banking Services Executives from nine Russian oil companies agreed to the reduction, about 5 percent of Russia's daily crude exports, in a meeting today with Prime Minister Mikhail Kasyanov.

Bank Investment Together with pledges from Norway and Mexico to cut 100,000 to 300,000 barrels a day, Russia's reduction looked to satisfy OPEC, which had insisted on cuts of 500,000 barrels a day from producers outside the cartel before enacting its 1.5 million barrel reduction on Jan. 1. Russia rejected OPEC's call on Nov. 15, and the price of oil tumbled 11.6 percent, to a two-year low of $17.45 a barrel.

Alternative Investment OPEC did not officially address Russia's pledge to reduce exports today, but it was expected to issue a statement of support on Thursday. Bloomberg News quoted an unidentified official in the oil ministry of Saudi Arabia, the biggest producer with OPEC, as saying that the cut was a step in the right direction. The oil minister of Kuwait, another OPEC member, said his country welcomed the move, Reuters reported.

Online Investment Services Russia's rising output up about 9 percent this year has been taking market share away from OPEC at a time when growth in the world's biggest economies is slowing.

Accompany Essential Investment Next year will be no different. Mr. O'Sullivan, the analyst in Moscow, expected Russian oil exports to rise about 8 percent in 2002 in spite of the cuts, which may not continue beyond the first quarter. New pipelines and port expansions will give oil exporters from Russia and neighboring Kazakhstan new routes to markets. By 2005, exports will rise 20 percent, according to Deutsche Bank (news/quote).

Investment Company Still, companies insist the cuts are real. Tyumen Oil, Russia's fourth- largest producer, said it had already reduced investment for next year by 30 percent, to about $700 million, anticipating the cut. Tyumen's production, which this year rose more than 6 percent, is projected to increase next year by about 2 percent, the company president, Simon Kukes, said.

Investment Management Solution "These are real numbers we actually have to start cutting production," Mr. Kukes said. "There isn't much room for cheating."

Investment Management Services "Russia doesn't have much storage capacity," he said, and the state- owned pipeline company, Transneft, publishes regular reports on how much it exports.

Guide Investment Stock Excess crude will flow to refineries in Russia and in former Soviet states, like Belarus and Ukraine. But with Russia's domestic oil market oversupplied, producers will try to export those products, adding to the world supply. Oil products are counted as part of world supply. Of the 4 million barrels of oil Russia exports daily, 1.2 million are oil products.

Investment Manual Solution "The domestic market is already glutted," said Yevgeny Khartukov, the director of the nonprofit International Center for Petroleum Business Studies in Moscow. Exports of crude will be cut a bit, he said, "but mainly through redirecting flows."

Investment Stock "Oil will be shipped to Belarus, Ukraine," Mr. Khartukov said, "and there it can be refined and sent to other markets."

Essential Investment Solution Companies that had lobbied against reductions played down the cut. Sibneft, another large oil company, said that its plans to increase production by 22 percent next year would not be affected and that its exports in the first quarter would exceed those from a year earlier.

Citicorp Investment Services While markets ponder the numbers, Russia is on course to pump more oil and to cement its role as one of the world's most important producers.

Fool Guide Investment Motley The call on Russia to cut, "is just an element of the competitive battle," President Vladimir V. Putin, said today in an interview with Greek journalists. "Russia has oil. It is enough. What's more we are ready to increase our supplies for export."

Fidelity Investment Services By Sabrina Tavernise
New York Times - 12/6/2001

Topic: Petroleum Industry

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