Russia’s capitalistic oil industry pitted against OPEC

OPEC says whenever it curtails output to boost the price of crude, Russia steps in and increases its market share

Bruce Stanley

Associated Press Business Writer

One of Russia’s leading oil companies pays for thousands of school children every year to attend a program that teaches them pride in their nation, confidence in their own abilities — and how the market economy works.

Analysts say Yukos Oil’s interest in grooming future capitalists reveals more than how the Russian industry has changed its priorities since the Soviet Union’s collapse.

OPEC, their main rival, should have seen the changes coming before engaging in a battle of wills with Russia in a bid to prop up the plunging oil price, analysts say.

“OPEC is pitted against a really revived Russia, which has some of the most efficient oil companies in the world,” said James Fenkner, a strategist for the Moscow-based Troika Dialog investment bank. “On the other side are really quite fat and inefficient OPEC states.”

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil through primarily state-run industries, has complained that whenever it curtails output to boost the price of crude, Russia steps in and increases its market share.

OPEC agreed on a 1.5 million-barrel-a-day cut in output that went into effect Jan. 1 only after independent crude suppliers also lowered production by 500,000 barrels a day.

Russia agreed to a 150,000 barrel-a-day cut — but that was significantly less than OPEC had in mind and analysts say that a 150,000 barrel-a-day cut during the winter is normal for Russia.

The role of power broker in the international marketplace is new for Russia. Unlike the Soviet oil industry, the new private companies are profit-driven and aggressively pursuing new export markets. Russia pumps 7.2 million barrels a day now and has increased output this year by 520,000 barrels a day.

Christopher Weafer, chief researcher for Troika Dialog, predicted in a recent study that by the end of the decade, Russia could be “by far, the dominant global energy supplier,” destroying “OPEC’s ability to control pricing in isolation.”

Some analysts say that this is an ideal position for the Russian government, which has steadily watched its influence in world affairs slip since the fall of the Soviet Union.

Suddenly oil-importing nations like the United States might be willing to cut deals to keep the oil flowing and prices low.

But other analysts caution that Russia would be foolish not to be wary of a battle with OPEC and the cartel’s threats of a price war. The government wields little control over the privatized oil industry and is dependent on oil revenues to stay afloat.