Crude oil slid more than 3 percent after Russia said it will cut daily output by 50,000 barrels, a quarter of what rivals said was needed to help OPEC prop up prices as the economy and energy demand weakens.
Russia's oil industry produces that amount in 10 minutes on average. OPEC has refused to reduce its production unless competitors contribute 500,000 barrels a day. Oil soared by 7 percent yesterday after Russian oilmen signaled they would sign on for cutbacks that would bring that target within reach.
"This is a complete reversal of all the news that pushed the market back to US$20 a barrel," said Mohammed Sheikh-Kadir, an analyst at Rhein Oel Ltd., a unit of RWE AG, Europe's fourth-biggest power company. "This is bad news" for OPEC.
Brent crude oil for January settlement fell US$0.62, or 3.1 percent, to US$19.28 a barrel on the International Petroleum Exchange in London. Brent, which reached a two-year low of US$16.65 Monday on the producers' impasse, has fallen 42 percent in a year.
Russia kept the door open to deeper cuts before Dec. 10, as the government and oil companies set that deadline for deciding on 2002 production, said Leonid Fedun, vice president at top Russian oil producer OAO Lukoil. The 50,000-barrel reduction applies only until the end of the year, he said.
Norway's oil minister, who said yesterday his country would cut as much as 200,000 barrels a day if rivals joined in, recommended Moscow pledge an equal amount. OPEC ministers have sought 300,000 barrels a day in Russian reductions, and dismissed an earlier pledge to pare 30,000 barrels as a token gesture.
"If the market is as turbulent in 2002 as it was a week ago, then a cut of 200,000 to 250,000 barrels would be reasonable," Norway's Einar Steensnaes said in an interview today. "It is positive that Russia has signaled a willingness to cut more than it has previously announced."
Mexico, one of the top five suppliers of oil to the US, also conditioned its promised reduction of 100,000 barrels a day on similar steps from competitors.
"If promises made by non-OPEC have now become invalid because of Russia's lack of commitment, then we expect the market will test recent lows," Sheikh-Kadir said.
Still, prices may hover around current levels while traders wait for Russia's new plans by Dec. 10.
"We're in limbo" until then, said Orrin Middleton, an energy analyst at Barclays Capital in London. "As long as we remain here, there is a lot of waiting and watching."
None of Russia's top six producers is state-owned. That makes it more difficult for the government to control their output, even though it has some leverage over their exports through state-owned pipeline monopoly AO Transneft. The companies had said before today's meeting they would cut production if the government ordered them to.
OPEC will stick to the position it took at a Nov. 14 meeting, holding off on a planned 1.5 million-barrel-a-day supply cut from Jan. 1 unless non-members chip in their 500,000 barrels, a senior OPEC delegate said.
New York markets were closed on Thursday and Friday for the Thanksgiving holiday. The IPE closed at 5.30pm London time on Friday.
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