Russia, which in late November forwarded a draft memorandum on cooperation to OPEC, said it will announce proposals for reducing output by December 17, when OPEC next meets, Bloomberg News reported Wednesday, citing Interfax.
Russia is the world's second-largest oil exporter after OPEC member Saudi Arabia. A Russia-OPEC alliance, if it formed, would control about 45% of the world's oil supply.
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Economist Peter Dawson said Russia's actions could put a floor under oil's price, if other factors line up. Russia needs an oil price of about $75 this year to fund government operations, he said. Oil rose $2.29 to $44.36 per barrel in Wednesday morning trading.
"Assuming OPEC announces a two million barrel per day cut on December 17, if Russia decreases production by 500,000 per day that would remove some of the excess oil sloshing around in the system and slow the inventory build globally," Dawson said. "There's about 60% chance Russia will coordinate a production cut with OPEC." Russia produced about 9.8 million barrels of oil per day in 2007, he said.
Another factor in producers' effort to stabilize oil's prices: what non-OPEC producing nations do, and how the U.S. and global economies fare, he said.
"If non-OPEC nations seek to exploit OPEC's and Russia's decreased production by selling more oil, the price will not rise as much," Dawson said. "Another major factor concerns how the U.S. and global economies perform. Oil demand shows little sign of increasing in the U.S., so that will cap any rallies oil experiences in 2009. Likewise, with the global economy it will be very hard, even with oil supply cuts, for oil to rally above $60 with year-over-year declines in global oil consumption."
Oil Analysis: Oil's plunge has benefited the U.S. economy and consumer. Each $1 per barrel drop in oil increases U.S. GDP by $100 billion per year and every 1 cent decline in gasoline increases U.S. consumer disposable income by $600 million per year. That said, a total collapse in oil prices would not be welcome, either, as it would create large budget deficits in oil producing nations. The ideal: an oil price between $30-$55 per barrel -- high enough to encourage oil exploration, but not at a level that restricts GDP growth.
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Reader Comments (Page 1 of 1)
12-10-2008 @ 3:18PM
lou said...
If they raise the price of oil in a global recession they will only cut their own throats. They need to let the world come back financially first. The demand for oil will weaken if they cause more financial meltdowns worldwide. People will use less, and regardless of the high price they charge they will still make less.