Prospects have improved for another production cut by the Organization of Petroleum Exporting Countries design- ed to bolster oil prices.
OPEC officials last week said that energy ministers from member countries would discuss "coordination of the implementation of the organization's decision to reduce output" at an emergency meeting in Cairo Dec. 28.
That seemed to indicate OPEC is considering implementing at least some of its proposed 1.5 million b/d rollback of production quotas, even if non-OPEC producers fall short of the 500,000 b/d production cut demanded by the cartel.
OPEC's offer to cut output by 1.5 million b/d to tighten supplies and thereby boost sagging oil prices is contingent on non-OPEC exporters delivering one fourth of the total cuts the group sees as necessary to restabilize the market.
So far, Norway, Russia, Mexico, and Oman have pledged reductions totaling 425,000 b/d, or 85% of what OPEC demanded. The OPEC secretariat on Dec. 17 acknowledged the "positive statements of support" by those producers.
OPEC officials said production quotas would be decided at the upcoming meeting "in light of pledges made so far by non-OPEC oil producers and after reviewing the current oil market situation."
The Cairo meeting was announced by Venezuelan Energy and Mines Minister Alvaro Silva, who will chair it.
Representatives of most OPEC-member states were previously scheduled to be in Cairo in late December for a regular gathering of the Organization of Arab Petroleum Exporting Countries (OAPEC). The 10-nation OAPEC includes seven OPEC members.
Russia to renege?
However, in the longer term, OPEC is not assured of continued cooperation from Russia. OAO Lukoil, Russia's biggest oil producer and a reluctant participant in the production cut, said earlier it expects 2001 profits to drop below last year's $3.3 billion because of falling world oil prices. Accordingly, Lukoil said it plans to increase oil production 2.8% to 1.6 million b/d next year.
Pres. Vagit Alekperov said Lukoil's net income, based on US accounting principles, tripled in 2000 as oil prices rose to a 10-year high, but profits fell 2.1% in the first half of 2001. He said earnings for the year would decline from 2000 but would not provide a specific profit forecast.
The company will invest more than $5 billion over the next 10 years to develop oil fields in northwest Russia, upgrade refineries, and build pipelines, Alekperov said. "Our goal is to increase annual production in the region from 80 million bbl to 150 million bbl, and to develop retail sales so that we have 25% of the local market."
Norway's cut
Norway was the latest to join the non-OPEC output rollback bandwagon.
Last week, the Norwegian government said it will reduce its oil production by 150,000 b/d from Jan. 1 through June 30, the period advocated by OPEC.
That moves OPEC closer to its promised production cut of 1.5 million b/d, provided that major non-OPEC producers reduce their output a total 500,000 b/d so as not to take a bigger share of world markets.
Norwegian officials said Dec. 17 that their decision to reduce production to 3.02 million b/d from a projected 3.17 million b/d during the first 6 months of 2002 is "unilateral" and not part of any formalized agreement with OPEC or other producers. They said the measures would be suspended unilaterally if:
- Other countries do not implement their promised production cuts.
- The reductions do not have the desired effect of stabilizing world oil markets.
- Their evaluation of the oil market situation deems it necessary.
The reductions will be applied equally to all companies operating on the Norwegian continental shelf, officials said. Nearly all oil producing fields will be subject to a proportional reduction in production, except for the Statfjord and Murchison fields that Norway shares with the UK and the small Varg field that is soon to terminate production.
Norway's proposed cut matches that promised by Russia. Oman has reduced its production by 25,000 b/d, and Mexico promised to curtail its output by 100,000 b/d.
