Russia to cooperate with OPEC but oil declines
Russia, which is pretty much an economic one-trick pony, said it will team up with OPEC. This would appear to imply that Russia intends to assist in keeping prices high, and raises once again the question of just how much oil played a part in Russia’s recent invasion of Georgia. Meanwhile, in another move that should have been bullish for oil, OPEC said it will trim production a bit. WSJ:
Russia upped the ante in its faceoff with the West by proposing “extensive cooperation” with the OPEC oil cartel, an idea that would stir concerns among big oil-consuming countries like the U.S. The Russian proposal came just hours before the group’s 13 ministers decided to scale back production by around 520,000 barrels a day, or less than 1% of world oil supply, over the next 40 days in the face of falling prices and slowing demand growth…
The Organization of Petroleum Exporting Countries supplies around 40% of the world’s oil, while Russian output makes up another 11%…concerns already run high in the U.S. and Europe that Moscow is trying to increase its chokehold over Europe’s energy needs. Moscow supplies Europe with most of its natural gas and much of its crude oil and gasoline.
OPEC’s first formal gathering in six months was otherwise fraught with politics and posturing as factions tussled over whether to cut output even as oil still hovered above $100 a barrel. Some voices within the group argued that OPEC should exhibit restraint and lower its production. The decision to cut output over the next month means that Saudi Arabia will likely scale back its production to where it was earlier this year, before Riyadh began ramping up in a bid to drive down record prices.
Oddly enough, oil responded to all this by falling another 1.4% today; Brent crude closed under $100 for the first time since March. Whether this is due to the continuing liquidation of futures positions ($39 billion in the last few months) or other factors, such as an expectation of the cartel members’ cheating on quotas when prices decline, remains to be seen.