Russian oil drop may be inflating prices

The International Energy Agency has hinted that a 1 per cent drop in Russian output in the first quarter of 2008 is contributing to record oil prices. This is the first time in ten years that Russian production will have fallen.

Analysts say the fall may be anomalous, due simply to high taxes and inadequate reinvestment. Russia is the world


World output is about 11 million tons per day; the New York exchange (NYMEX) alone is trading around 30 million tons (220 million barrels) of oil daily. But the director of the St Petersburg Mining Institute, Vladimir Litvinenko, sent shivers down Russian spines when he suggested contemporary Russian oil fields would continue to produce for only another ten to 20 years.

The high price of oil, although good news for the Russian government, is not good news for Russian oil companies. Higher prices paid for Russian oil during the preceding month lead to higher taxes and, in particular, to higher export duty on oil for Russian producers. A falling price only affects the export duty rate many weeks later.

This situation – in which companies like Lukoil, Surgutneftegaz, Rosneft, Tatneft, Gazpromneft and TNK-BP find themselves – handicaps the companies