eh up! did someone call me name? WARNING! unrestrained speculation and rhetoric below...
actually FourWinds i was just surprised that the Russians took so long to cut production. the attacks on america on september 11th were, i believe, used by a lot of companies as an excuse to make the cutbacks that the shrinking economy had been demanding for months previously.
airlines went bust, and those that didn't slashed the number of flights they made. large companies laid off tens of thousands of employees; presumably as a result of falling demand for their products and hence falling production at their factories. all in all, as with any recession... we are basically seeing a fall in the demand for oil. without production cuts, this means a production surplus and a consequent fall in the market price.
russia's budget for the 2002 fiscal year is predicated on getting 23 dollars per exported barrel. the price is currently just below 20 dollars and will remain there while there's surplus production. of course, if they are getting 23 dollars each for less barrels then they have problems too... but that'll even out when demand for oil increases again and there's a period of production shortfall when the prices will head back up towards 30 dollars a barrel.
according to geologists Richard Duncan and Walter Youngquist, russia will probably retain surplus oil capacity until late in this decade. this means that they can effectively negate small cuts in OPEC production through making consequent increases in their own.
that's not - of course - to say that they could have anything but a minor effect on market prices if OPEC decided to do something truly drastic. as it is, OPEC have made a relatively small cut, and it's in russia's best interests to play ball - the OPEC cut isn't enough to raise prices in itself, so russia gains nothing through increasing production except to sell more of their oil at a low price.
i firmly believe that the next 8 to 10 years or so will be the last in which the world has access to cheap oil (note: there's still plenty of oil, we've probably yet to use up half of it in total, the issue is the fact that we are reliant not on oil, but on *cheap* oil, and that will be what disappears when production starts to drop off, as a lot of geologists think will happen at the end of this decade).
until that day, however, the oil market is not a "free" market in any sense, and the world's few producers can manipulate the price of the stuff easily and effectively.
i think we'll soon see the sort of polarisation that occurred in the cold war... except this time it'll be the emergence of an islamic superpower in the gulf region that precipitates it. the saudi regime is by-and-large pro-American. when (i don't think it's a case of *if*) they get replaced by a strong, pro-Arab government then they will (with half of the planet's remaining oil) be a power to rival the US. in such a polarisation, i predict that russia would see itself more aligned with the US than with islam.
but that's yet to happen, and til then it's in russia's best interests to keep the price of oil above 20 dollars a barrel.
them's my thoughts anyways.
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