Crude oil tumbled after Russia said it would begin to remove export restrictions that had contributed to a 41 percent rally this year.
Russia, which pumps more oil than any nation except Saudi Arabia, is ending the limits to allow producers including OAO Lukoil and AO Yukos Oil Co to benefit from the rally, Prime Minister Mikhail Kasyanov said. The country had been cooperating with an OPEC plan to limit supplies and prop up prices.
"OPEC has to worry," said Robert Ebel, director of the energy and national security program at the Center for Strategic & International Studies in Washington. "Russia is going to take a large chunk of the market, leaving less for them."
Crude oil for June delivery fell as much as US$0.85, or 3 percent, to US$27.10 a barrel on the New York Mercantile Exchange.
Prices were down 3.2 percent this week. Prices through yesterday had gained 41 percent this year because of limited supply, Middle East tensions and stronger demand from growing economies.
In London, the July Brent crude-oil futures contract fell as much as US$0.63, or 2.4 percent, to US$25.75 a barrel on the International Petroleum Exchange. Prices were down 3.1 percent this week.
For now, Russia's decision "will mitigate any upward movement in prices," Ebel said.
Oil company share prices dropped along with crude oil. Exxon Mobil Corp, the world's biggest publicly traded oil company, fell US$0.42 to US$39.85 in midday trading. ChevronTexaco Corp, the second-biggest US oil company, fell US$0.27 to US$88.73.
Russia will export "as much as the market requires," Kasyanov said in a Bloomberg TV interview. "Russia is interested in stable oil prices of US$20 to US$25 a barrel. Prices are higher than what we believe is fair."
The country, which pumps about 10 percent of the world's oil, imposed the curbs on its exports starting Jan. 1, after OPEC threatened to flood the market with oil. Norway, Mexico, Oman and Angola also joined in cooperating with OPEC. The OPEC and non-OPEC producers promised to reduce world supply by 2.6 percent.
The Russian plan didn't force producers to reduce production, though, and excess supplies were sold into the domestic market, depressing prices there.
"They are swamped with both crude and products," said Rick Mueller, an analyst at Energy Security Analysis Inc in Wakefield, Massachusetts. "The internal market is being crushed, so they have to increase shipments."
Norway's oil minister, Einar Steensnaes, earlier this month said his nation was likely to end its restrictions on July 1.
Norway is the third-biggest exporter after Saudi Arabia and Russia.
"Of the non-OPEC group, only really Norway was scrupulous about holding to its levels," said Jim Steel, director of commodity research at Refco Inc in New York. "With Russia formally abandoning it, it does raise the question of whether the whole production-cutting agreement may dissolve."
A spokesman for OPEC at its Vienna headquarters said the group was "not surprised" by Russia's decision, adding that crude-oil supplies are already sufficient on the world market.
OPEC will try to persuade Russia to change its mind on ending export limits at a meeting with oil experts from Russia and three other independent producers scheduled for June 20-21, the spokesman has said.
The producer group's output targets are at their lowest level since the 1991 Persian Gulf War after cutting them by 5 million barrels a day, or 19 percent, since January 2001. OPEC oil ministers meet next on June 26 in Vienna.
"The Saudis, worried about the industrial countries' economy and the capture of additional market share by non-OPEC, may decide on the eve of the June 26 meeting that the time has come to raise OPEC output," said Mordechai Abir, director of energy and geopolitical research at New York-based Burnham Securities Inc, in Jerusalem.
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