00:37 GMT +318 February 2019
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    OPEC's record oil production cut

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    MOSCOW. (RIA Novosti economic correspondent Oleg Mityayev)

    As expected, OPEC decided to cut oil production by 2.2 million barrels per day at a meeting in Algeria on December 17.

    Controlling 40% of oil production, OPEC was reacting to the current recession in the majority of industrialized countries, and the shrinking demand. However, at best this decision will keep oil prices at the current level of a little over $40 per barrel.

    In late October, OPEC reduced production by 1.5 million bpd but oil prices continued to drop in November even reaching prices below $40 per barrel. So on December 17, the OPEC oil ministers agreed to cut the current official quota of 27.3 million to 25.1 million bpd effective January 1. This is the deepest production cut in OPEC history.

    OPEC spokesmen said the cut is aimed at reaching a fair oil price of $75 per barrel. Oil traders consider this acceptable because the economies of the United States, Western Europe, and Japan have plunged into recession and are using less oil. In a recent estimate by the International Energy Agency, China also reduced oil consumption in November.

    The majority of experts believe the recession will continue through next year, and that it would be naive to expect a "fair oil price" in the near future. The World Bank predicts that oil will cost $75 per barrel only in three years' time.

    A steep fall in oil prices last fall compelled OPEC and Russia to step up their dialogue at the highest levels. On December 11, President Dmitry Medvedev said that Russia may even decide to join OPEC.

    Deputy Prime Minister Igor Sechin, who attended the conference in Algeria (Russia has observer status in OPEC) cautiously promised OPEC that if prices remain this low, Russian oil companies may reduce supplies by 320,000 bpd starting in January, but did not guarantee it.

    Nevertheless, oil production is likely to decline in Russia next year for a more objective reason: the old deposits in European Russia and in Western Siberia are being exhausted. Current price levels and the continued financial turmoil will not allow the oil companies or the government to fund the development of new deposits in Eastern Siberia and the Arctic shelf.

    In the eleven months of this year, oil production in Russia has dropped 0.5%, or 50,000 bpd. The majority of analysts predict that it will decrease by another three percent, or 300,000 bpd - the figure OPEC insists on. Based on current oil prices, this decrease will cost Russia about five billion dollars.

    The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.