Russia backs oil cuts

Oil producers have an obligation to cut supplies in the face of falling demand, OPEC has heard.

VIENNA // Oil exporters have an obligation to cut supplies in the face of falling oil demand that could push crude prices still lower, Russia's deputy prime minister said earlier today in a formal address to OPEC. "Decreasing oil supplies is a compulsory but justified measure for all global exporters, and its implementation will require substantial efforts of exporters," Igor Sechin said in a speech preceding a closed-door meeting of OPEC ministers at the organisation's headquarters in Vienna. "The risk of a further decrease of the oil price is unfortunately extremely high."

A global drop in industrial production is driving falling demand for oil that is unlikely to be balanced this year by supply cuts, Mr Sechin argued. "The oil supply will exceed the demand. As a result, inventories in consuming countries will be increasing rather than decreasing," he predicted. But a further oil-price decline could have dangerous long-term consequences for supplies. "Oil consumers should understand that the decreased demand will not allow maintaining necessary investment levels. That is true even at the present price levels, not to speak of a further price decrease," Mr Sechin said.

"New large-scale projects which the global economy will need after the crisis ends are now jeopardised. The global economy will again face shortages and oil prices will rocket to the levels higher than those that seemed to be historically high." "In such a situation, responsible and co-ordinated policy becomes a more acute issue." In order to limit crude oil exports, Russia's government is implementing measures aimed at developing the country's domestic oil market. For instance, it is using "taxation and customs instruments" to encourage investment in petroleum refining infrastructure, Mr

Sechin said. To decrease near-term oil exports, "we have temporarily terminated granting licenses for new large fields" in north-west Russia, close to the country's main European export market, he added. At the same time, Moscow is taking steps to stimulate the development of other fields from which production is expected to start in three to four years' time. [e-mail]