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Will Russia challenge OPEC in global oil supply?

Published by Daily Star on 2003-10-21

BEIRUT: The surprise decision recently by the Organization of Petroleum Exporting States(OPEC) to cut daily production by 900,000 barrels starting November is widely expected by energy analysts to tighten the global market and also generate higher revenues for oil producers, especially those from the Gulf. But muddying the situation is what Russia--which is the world's biggest oil producer outside OPEC--may do about increasing its exports this winter, the analysts say.
Analysts ask if a confrontation between Russia and Saudi Arabia over market share is shaping up. "The Saudi government is concerned about near term revenue, first and foremost," said Edward L. Morse, founder of the American Petroleum Intelligence Weekly and currently a top analyst with Hess Trading in New York. "A battle for market share that sees prices plunging toward or below the $10 level reached in 1998 would punish the kingdom as much as it would other producers."
At the moment, the Saudis--and, indeed, other OPEC producers--don't have much to fear about diminishing revenues. Their oil export revenues so far this year have been the highest since the early 1980s. Saudi oil revenues are estimated to reach at lest $85 billion this year, possibly even exceeding $95 billion. Along with a modest surplus from 2002, that makes for a "substantial war chest"--in Morse's words--to finance lean years or a price and production showdown with Russia. The Saudi budget for 2003 is some $62 billion, which would leave a healthy surplus of at least $30 billion for the kingdom.
Still, OPEC producers are worried about what Russia--which currently produces 5 million barrels a day for export--might do. Russia's exports are larger than those of the United Kingdom and Norway combined. It has long aspired to be a global exporter in the oil and gas sectors rather than mainly to Europe, as it is currently. It could well "undermine and stymie" Saudi Arabia's oil sector objectives, including its ability to manage the market, Morse said.
Will a Russia-Saudi showdown over market share occur this winter? Because global demand remains sluggish and because Russia has been known to want to balance its interests involving not only OPEC but also the United States and the European Union, analysts say that a confrontation may not be imminent. But what if global demand increases? Will the Russians be tempted to enter the fray by producing more? Stay

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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