The February 10 decision taken at OPEC's extraordinary conference in Algeria to reduce daily oil output by about 2.5 million barrels (or 9% of total output) produced a sharp reaction on global oil markets. Almost no one had expected the move, which means the cartel will produce only 23.5 million barrels per day from April 1.
Indeed, analysts had preferred to discuss a possible fall in oil prices in 2004, but came to the conclusion that there would be no slump in the near future, as prices would vary between $26.7 and $30 per barrel in the second quarter. However, the price of March WTI (West Texas Intermediate) crude oil futures jumped to $33.87 on the New York Stock Exchange on February 11, while the London rate for Brent oil futures reached $30.12. Meanwhile, Russian Urals blend prices jumped almost a dollar in Mediterranean ports to hit $26.86.
What prompted OPEC to take its latest decision? Looking at the situation from Moscow, there would appear to be several reasons.
First of all, OPEC has curtailed oil production in line with its own 2003 quotas alone. Incidentally, seven out of the cartel's ten countries with quotas over-fulfilled them by 1.8 million barrels a day.
Secondly, the Iraq-Ceyhan trunk pipeline will soon start pumping oil. Although Iraq exports some oil through its port of Basra, these supplies do not have any great influence on the global market. However, the European-market situation is likely to change once Iraq starts exporting more oil, experts from Russia's LUKoil company say.
Thirdly, less substantial oil production and the resultant price increase will enable OPEC to compensate its export revenues in view of the falling dollar. As all oil trade operations are conducted in dollars, exporters tend to suffer as a result. Indeed, however much he may not like the idea, US Treasury Secretary John Snow, and some other officials, have advocated a weaker dollar.
Furthermore, one should mention the seasonal factor because the European and North American heating season will end in the second quarter, which means demand for oil and petroleum will fall.
Moscow has reacted calmly to the latest OPEC decision. As it is not a cartel member, no one has asked for Moscow's consent with regard to raising oil prices. Russia does co-ordinate its actions with OPEC to some extent. However, on this occasion, no one informed Moscow about the OPEC decisions in advance, Energy Ministry sources told RIA Novosti. Consequently, the decision to cut back on production came as something of a surprise to Moscow, too.
While meeting journalists in Azerbaijan last week, Russia's Energy Minister Igor Yusufov said that a barrel of Russian oil would cost between $25 and $28 this year. Russia is set to produce 432 million tonnes of oil this year (a 3% increase on 2003). The country produced 37 million tonnes in January, which means it slightly exceeded the planned targets, Yusufov added.
At any rate, Russian oil companies will most likely take advantage of the favourable situation on the global market, as, indeed, any oil exporter would.