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14 Sep, 2010 07:35

Benefits of cooperation bring Russia and OPEC closer

OPEC -the oil-exporting producers cartel formed to regulate and stabilize the oil markets is marking its 50th anniversary, with its complex relations with Russia in the spotlight.

Russia has long been a major oil exporter, and in recent years with Saudi production cutbacks it has held the number one mantle globally. But despite having much a strong interest in oil market stability it has for more than a generation held off from joining the global producers cartel, OPEC. Aleksandr Nazarov Senior Oil and gas analyst at Metropol, says there are key strategic reasons for this.

“Russia as a country is not in a position to make any cut of oil production itself, what actually OPEC demands from its members. And the second reason is technological, because the main instrument of OPEC of manipulating oil price is decreasing or increasing its oil production and the main instrument of these increases or decreases are so called spare capacities of oil production.”

Despite working with OPEC at times, Russia has held its capacity to act as it sees fit, notably in not cutting production when oil prices plummeted from as high as $140/bbl in 2008 to below $40/bbl within 6 months. Despite differing priorities Lilit Gevorgyan Country Analyst, IHS Global Insight, says OPEC and Russia are becoming increasingly aware of the benefits of cooperation.

“Once the two sides realize the benefits of cooperation then they can come to some sort of agreement – possibly not a full membership of Russia, but closer cooperation and introducing as I said things like long term contracts or agreements that would preclude speculative rise in energy prices or fluctuation of energy prices in the world”

The short term outlook for oil prices is stable and the longer term dominated by concern that supply simply will not be able to keep up with demand, driving prices much higher. The ties between the two are likely to become much closer, with the thought of productions cutbacks becoming less relevant, and focus turning to pricing mechanisms, distribution, and simply producing enough.