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October 2008

Vol. 13, No. 43 Week of October 26, 2008

Russia considers price-related reserve

Nataliya Vasilyeva

Associated Press Business Writer

Russia may establish an oil reserve to influence global commodity prices but won’t cut output, the country’s top energy official said Oct. 22.

Deputy Prime Minister Igor Sechin, who is in charge of the energy sector, said the government was considering creating an oil production reserve “which would allow it to work more efficiently with prices on the market.”

Sechin would not say how big the reserves would be, but said they should be “enough to reach efficient pricing parameters,” Russian news agencies reported. “Oil has become more of a financial instrument than a commodity.”

He confirmed that Russia wouldn’t cut oil output unlike OPEC nations, which are expected to slash production at an extraordinary session Oct. 24.

OPEC Secretary-General Abdullah al-Badri said before a meeting with Russian President Dmitry Medvedev Oct. 22 that he would not ask Russia for oil production cuts as global prices fall.

Analysts had said Russia was unlikely to agree to coordinated production cuts, given that it already is battling with falling output as West Siberian oil fields mature. Declining oil production is bad news for a resource-based economy where revenues from the oil industry account for about 25 percent of gross domestic product.

Largest non-OPEC producer

Russia, the largest oil producer outside OPEC, has seen its stock markets bruised in recent weeks amid deepening fears of a global recession and plunging oil prices. The price of oil has more than halved since peaking at $147 in July. Crude oil in New York traded at $69.5 per barrel Oct. 22. Russian energy stocks had fallen between 6 and 7 percent on the MICEX stock exchange in mid-afternoon trading Oct. 22.

Russian officials have talked about setting up an oil reserve before but have not taken steps to implement such a strategy so far. Analysts have said it would require considerable investment both to buy the oil and build the necessary facilities.

“It is quite unclear whether (the reserve) will be able to influence prices,” said Valery Nesterov, an energy analyst at Troika Dialog.

Shervani Abdullayev, oil analyst at Alfa Bank, referred to the idea as a “jabber.” “It’s just a feeble attempt to stop oil prices from falling. Sechin hardly knows how prices are formed on the market and what tools we have for it,” he said.

—Associated Press writer Catrina Stewart contributed to this report.





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