Oil price spurts as Russia cuts output

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Russia yesterday bowed to massive pressure from Opec to pledge sizeable oil production cuts but analysts predicted that the oil price would remain under pressure from quota cheating and slackening global demand.

After weeks of defying Opec, Russia agreed to cut output by 150,000 barrels a day. Opec had angrily put on hold a planned 1.5 million barrel a day production cut, due for the new year, until producers outside the cartel agreed to reduce production by 500,000 barrels.

Norway and Mexico had already agreed to substantial supply reductions. Russia originally only offered a token 30,000 barrel cut, increased more recently to 50,000 barrels.

In London trading, crude oil for January settlement jumped nearly $1, or 5 per cent, to $20.25 a barrel as Opec welcomed Russia's increased offer. The Russian Prime Minister, Mikhail Kasyanov, negotiated the cut with the country's top oil companies at a meeting yesterday.

However, many analysts viewed the news as a victory for a clever game played by Russia, rather than a win for Opec. Observers also said they did not expect Russia or Opec to stick to the new limits in practice. Professor Paul Stevens of Dundee University pointed out that Russian output typically fell by 100,000 barrels each winter anyway.

"Russia is actually offering nothing more than they were. But Opec should go for this as they were desperately looking for a way out, otherwise there was the possibility of $10 oil early next year," he said.