Russia Considering Establishing Oil Reserve to Influence Prices

Russia is dependent on oil exports for its new-found prosperity and does not appear ready to give it up. From CNN Money (hat tip reader Michael):

Russia’s top energy official said Wednesday that the nation may set aside an oil reserve to influence global prices – but won’t cut output, news reports said.

Deputy Prime Minister Igor Sechin, who is in charge of the energy sector, said the government was considering creating an oil production reserve “which would allow it to work more efficiently with prices on the market.”

Sechin would not name the amount of the reserves, but said they should be “enough to reach efficient pricing parameters,” Russian news agencies reported.

He confirmed that Russia would not cut oil output, unlike OPEC nations which are expected to slash production by 1 million barrels.

OPEC Secretary General Abdullah al-Badri, in Moscow for talks with Russian officials, said Tuesday that he would not ask Russia to cut oil production as global prices fall. Analysts had said Russia was unlikely to agree to coordinated production cuts, given that it already is battling falling output as West Siberian oil fields mature.

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3 comments

  1. William Mitchell

    This doesn’t make sense. Russia already has the best kind of reserve: oil in the ground. It’s free to just leave it there. Why spend to pump and store?

    Maybe they plan to cheat the cartel. They can hide oil sales, but not production. A fictitious reserve would solve this problem.

    Is there some other reason I’m missing?

  2. Anonymous

    No, it doesnt make much sense outside of some kind of weird bluff.

    The other thing the head of Gazprom announced in the Spring, Russian production had peaked. So, its a weird time to be talking about creating reserves.

    Obviously, all the oil producers got quite happy with money from run-up, no doubt they’re a little concerned with the price drop and how to stop it.

  3. baychev

    indeed deep underground storage seems the cheapest and with highest ROI option (no investment).
    the gov’t had recently slashed the exercise tax on oil and is giving subsidies to oil companies to explore new fields. before the gov’t was pocketing 75% of all oil revenue, which i believe is the right thing given that underground reserves belong to the state rather than to the companies that simply pump it out.
    but the slump in oil prices is going to wipe out the budget surpluss and pull a handbrake on the currency reserves, so the politicians will play it more humble. asides from that the prospectives for further industrialization and growth are excellent and steps were taken already to diversify the economy. we’ll see how fast this will develop.

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