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Analysis: Russia, Europe and OPEC's oil
Berlin (UPI) Oct 24, 2008 OPEC's decision to cut oil production to halt the free fall of prices is set to please Russia and trouble Europe. The Organization of Petroleum Exporting Countries at an emergency meeting in Vienna on Friday decided to cut its oil production by 1.5 million barrels a day. The cartel's current production cap is at 28.8 million barrels a day. The measure is aimed at halting the freefall of crude oil prices, which because of the global financial crisis have more than halved to under $65 a barrel, from a record $147 in July. "The prices at this time, being affected by the financial crisis, (are) very low," OPEC Secretary-General Abdalla El-Badri was quoted by the BBC as saying Friday. "We have to bring the prices up." OPEC said the 1.5 billion barrels correspond with the amount of oversupply. Demand for oil has dropped recently and, according to experts, will continue to do so over the coming months because of slower economic growth all over the world. Chakib Khelil, the cartel's president, said he and his colleagues from the 13 OPEC member states were therefore forced to cut production. "What choice do they have -- see the oil price going down to lower levels?" Saudi Arabia, the world's largest oil producer, will reduce its output by 466,000 barrels a day, with Iran cutting production by 199,000 barrels, OPEC said in a statement. The move was widely expected, and maybe that's why it did not immediately have an impact on the market, with crude prices continuing to drop in Friday trading. The world's second-largest oil producer, Russia, nevertheless will be happy about the production cut, as it should have a stabilizing effect on prices in the long run. Moscow in recent months has sought closer contact with OPEC to see how it could influence prices. On Wednesday El-Badri, the OPEC secretary-general, met with Russian President Dmitry Medvedev in Moscow for the first ever meeting between the top OPEC official and the head of the Russian state. Russia is overly dependent on revenues from its oil and gas sector (in Europe gas prices are linked to those of oil), which make up nearly half of Russia's state income. On Friday, Russia's stock market lost over a tenth of its value, dropping to a four-year low that sowed doubts over Russia's ability to avoid a recession. It's a simple calculation: If oil is down, then Russia is more likely to suffer. The Kremlin depends on average prices of $90 a barrel in 2009 to have a stable budget -- that's why Russia has a great interest in "stable and calculable prices," Medvedev said after the meeting with El-Badri, adding that closer cooperation with OPEC was key for Russia's future energy policy. Since this week, Russia is playing with the idea of creating federal oil reserves similar to those of the United States to have a greater influence on prices and to overcome phases with smaller revenues. Yet experts say the Russian production facilities are aging and are unable to easily handle short-term production adjustments. Europe has long urged Russia to invest in its oil and gas infrastructure, especially after it surfaced that Russian oil and gas output dropped slightly in 2007 after years of steady growth. To prevent a further production drop, experts say Russia needs to spend roughly $300 billion over the next eight years to modernize its infrastructure. Importers in Europe are keen that these investments are carried out, as such investments would increase supply security for Europe. Unlike Russia, Europe's export- and industry-heavy economies have been happy about the low oil prices, which act like a shot in the arm of the companies troubled by slowing demand because of the financial crisis. Germany, the world's most successful exporter (ahead of the United States and China), is equally pleased about the weak euro, which fell to a two-year low compared with the dollar this week. A fledgling European currency helps stabilize demand for German goods in the dollar zone in times of low economic growth. In Germany, experts already hail the bailout package of "cheap oil and cheap euro" as the savior of the German economy. But don't mention that to the Russians. Community Email This Article Comment On This Article Share This Article With Planet Earth
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Can Untapped Energy Wealth Save Afghanistan
Washington DC (UPI) Oct 27, 2008While Afghanistan now intermittently crops up during the presidential debates, it is largely the forgotten war, which next month will be seven years old with little resolution in sight. Inside the Beltway chickenhawks never proposed that Afghanistan's energy resources could somehow pay for the war, but the fact remains that since 2001 little money has been directed to Afghanistan's energy sector to help the country become self-sufficient, much less an exporter. Nearly eight years after coalition forces overthrew the Taliban, Afghanistan remains one of the world's poorest and least developed countries, where two-thirds of the population live on less than $2 a day. |
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