Streetwise Professor

May 29, 2009

Fool Me Once

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 2:49 pm

This Reuters article provides confirmation that Russia’s opportunistic attempts to use OPEC to advance its own interests (opportunism analyzed in detail in several SWP points) have left the oil cartel spitting mad:

Russia is no longer a welcome guest of OPEC after boosting its production to levels far above those pumped by the group’s biggest exporter, Saudi Arabia, and snatching away market share.

After flirting with OPEC when a barrel of oil cost less than $40, Moscow has once more set its course on raising production to support an economy entering its first recession in a decade, leaving OPEC to shoulder the burden of record output cuts.

“OPEC members have cut almost 4 million barrels per day in order to subsidize the Russian oil industry and economy to the tune of about $150 million per day,” said Chris Weafer, chief strategist at UralSib investment bank.

“This is unlikely to sit well with OPEC member countries.”

. . . .  

Senior Russian government officials have attended the last few gatherings, while producers, including the largest independent oil firm LUKOIL (LKOH.MM), had signaled they might be willing to cut output.

Yet Russian oil production rose in April to 9.85 million bpd — 1.3 percent more than the 9.72 million bpd produced in February.

Saudi Arabia, the world’s top exporter, has been pumping less than 8.05 million bpd since February as it accounts for the bulk of OPEC’s cuts.

“Russia, rather than cutting exports, has now increased exports of oil products at a time when OPEC supplies are at their lowest in five years,” said Valery Nesterov, oil and gas analyst at Russian investment bank Troika Dialog.

While OPEC has cut output by about 5 million barrels per day since last July, Russia has increased the supply of oil and oil products by 6.4 percent, or 0.45 million bpd, Nesterov said.

“In other words, Russia has compensated for about 10 percent of the cuts made by OPEC.”

The Russian response?  A real howler:

Russian officials said they were not invited to this week’s OPEC meeting, but say their absence is not political.

“It has nothing to do with the rising oil prices. There are some organizational issues,” Anatoly Yankovsky, Russia’s deputy energy minister, told Reuters. Another ministry official said OPEC called Russia to its meetings as an observer during crises in global oil markets. “OPEC now considers that the situation is stable,” he said.

Yeah.  There are some organizational issues.  Like, the organization in question has had enough of Russia’s BS, and is not going to be played for chumps again by Igor Sechin.  

Now, I detest OPEC, and attempts to cut output collusively to prop up prices above the competitive level.  So, in that sense, it is a good thing that Russia cranked up output in response to OPEC cuts.  Though I know that Russia’s actions had nothing to do with any commitment to competition or any aversion to anti-competitive tactics.  

That said, I still find this dispute among thieves to be quite illuminating.  In particular, it casts a glaring light on the duplicity and opportunism that characterizes the actions of the siloviki that dominate the Russian energy business, and hence, by extension, the Russian government.  OPEC has found to its dismay (but to the joy of energy consumers) that Russian declarations of solidarity and cooperation are intended primarily to gull the credulous, and that such whispered sweet nothings are completely incredible.  Chumming for chumps.  This has implications that extend far beyond Russia’s dealings with OPEC.  In particular, it seriously undermines the case for a “realist” “reset” with Russia; what’s the point of negotiating grand bargains with such bald faced opportunists and liars?

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20 Comments »

  1. Russia’s ability to make people loathe it is unrivaled among modern nations. When OPEC thinks it beneath them to deal with somebody, you know that somebody is mighty low down in the gutter.

    Russia also had a major breakdown in relations last week with Belarus, it’s kissing cousin.

    Meanwhile, it has strongly sided with North Korea and Hamas against the West. This is the place to which proud KGB spy Vlad Putin has led his country. It is a place of ultimate despair.

    Comment by La Russophobe — May 29, 2009 @ 5:27 pm

  2. If you sink low enough, you will eventually emerge at the top.

    Such is life. Take heed.

    Comment by Sublime Oblivion — May 29, 2009 @ 5:34 pm

  3. No surprise. Russia cheats. It has in the past. Considering that they have displeased the big Godfathers of Oil and being the chump change neighborhood Sopranos in scale let’s hope there is pay back time coming their way. Their oil fields are rotting away. Unless they spend some capital or attract some from the west they will be in sorry shape in the coming years.

    Speaking of oil, a not unsurprising post at one of my favorite financial blogs today:

    http://zerohedge.blogspot.com/2009/05/guest-post-good-bad-and-gdp.html

    Deliver us from the Russian Kremlin oligarchs and and our homegrown one, Goldman Sachs.

    Comment by penny — May 29, 2009 @ 5:36 pm

  4. Huh? Russia creating lower oil prices by sticking it to a global cartel that fixes oil prices is a bad thing? If the FSB announced tomorrow that they had killed Osama Bin Laden, would you complain that they didn’t read him his Miranda rights? This reminds me of the time when Belarus was converted overnight from a Kremlin puppet state to another victim of Russia’s energy imperialism because they couldn’t pay their gas bills on time. The ludicrousness knows no bounds.

    Comment by Charles Ganske — May 29, 2009 @ 10:42 pm

  5. Charles-

    Do us all a favor and actually read before responding: “I detest OPEC, and attempts to cut output collusively to prop up prices above the competitive level. So, in that sense, it is a good thing that Russia cranked up output in response to OPEC cuts.”

    For the benefit of the slow learners in the class: I said it was a “good thing” [my words] not a “bad thing” [your words, emphasis deleted.] Great job! You attribute to me the exact opposite of what I said! And you wonder why I consider your comments to be routinely dishonest?

    The ProfessorComment by The Professor — May 30, 2009 @ 7:54 am

  6. but professor, you gotta applaud charles for pointing out the double standards of yourself and the other clueless russophobes that visit your site. you guys are blind to reality, that is not “realist” either

    Comment by lisa — May 30, 2009 @ 8:29 am

  7. Lisa–

    Uhm, no, I don’t.

    The ProfessorComment by The Professor — May 30, 2009 @ 8:34 am

  8. My point was, if Russia does X, then as a certifiable Russophobe, you feel a compulsion to put in a good word for Y, regardless of whether if Russia did Y it would be even worse and you would be criticizing them even more severely if they did the opposite. As in: Russia supplies its neighbors with cheap gas at subsidized prices, which is anti-free market. Countries shouldn’t pay half price for the same gas that goes to Germany just because the pipes cross their territory or they can claim historic victimhood. But when Russia resorts to supply cutoffs in the middle of winter to get its neighbors to finally get off the teat, this is an example of energy imperialism and bullying. Clearly, nobody could win against such a doublethink propaganda machine.

    In this case, if the Russians were faithfully fulfilling their OPEC assigned quotas, that would prove to you that they were in cahoots to keep oil prices as high as possible by stirring the global pot with Chavez and Ahmadenijad and co. But when they do not cooperate with Iran and Venezuela to keep oil prices artificially high, you whack them over the head and say, “See, this shows how untrustworthy they are.” Well which would you honestly prefer? It begins to resemble one of those “have you stopped beating your wife lately” questions from the anonymous sock puppet swarms that hang out here, that want to portray me as the love child of the Reverend Jerry Falwell and Kim Philby.

    I’m not here to discuss what the Russian government does or does not do, save for what we would and wouldn’t tolerate in our own back yard, and the blatant double standards, warmed over Cold War propaganda and ridiculousness that passes for serious analysis.

    While millions of Americans obviously have strong feelings in support of the State of Israel (for better or worse, and that’s a whole other discussion), the group of individuals trying to line their own pockets and push various Eastern European grievances as official U.S. policy (see Lev Dobriansky’s Captive Nations resolution, which purposely excluded Russia from the nations under the Communist yoke) in Washington clearly meet the definition of a small special interest. The vast majority of Americans could care less about Russia but they are easily influenced by the propaganda of this small hardcore anti-Russia lobby after fifty-sixty years of Cold War. The fact that the Wall Street Journal always has nice things to say about the People’s Republic of China but becomes Pravda on the Hudson (to go along with Pravda on the Potomac when it comes to the Washington Post, which also can’t always be bothered to fact check or make sure that their letters to the editor come from actual people using their real names rather than professional trolls) when it comes to Russia is just depressing.

    Comment by Charles Ganske — May 30, 2009 @ 8:37 am

  9. Never mind that it is due to OPEC member’s collaborative efforts in reducing output that puts a floor under falling oil prices which Russia needed desperately and without gratitude then cheats on.

    This isn’t about liking or disliking OPEC and its members, the point is that Russia acts like a rogue state in every setting. They have zero credibility in a pretty important organization when your biggest revenues are from oil and gas.

    But, then, the Sunni oil producing Arabs hate their guts for the mischief they playing with Iran in the region.

    Comment by penny — May 30, 2009 @ 9:30 am

  10. Charles:

    About whom in that post did I put in a good word?

    But more importantly: if you are going to make a point, make it honestly, rather than grossly mischaracterizing what I said.

    Moreover, stop projecting opinions and views on me. If you can quote something–accurately–fine. I will respond. But your hypothetical projections (e.g., “if the Russians were faithfully etc.”) are just that–the product of your imagination, and attempts to attribute to me views which I have in many cases not expressed. Your (fallacious) reasoning appears to be that everybody who you disagree with all agree on everything.

    Stick to the point. Stick to the posts. And do so carefully and honestly. And completely inverting my statements is neither careful nor honest.

    The ProfessorComment by The Professor — May 30, 2009 @ 11:04 am

  11. please be reminded that

    - azerbaijan and kazakhstan formally agreed to the opec-initiated supply cuts http://www.reuters.com/article/OILPRD/idUSLH50973720081217

    - russia said at that meeting that production in russia may fall, but did not commit to anything. russian critics were quick to say that production will fall because of “underinvestment” and poor management from the state companies. since production, is now due to rise does that mean that the state companies invested and managed correctly? hmm

    - russian oil export duties set to rise june 1st. prices are being affected that a way also http://www.upi.com/Energy_Resources/2009/05/28/Russian-oil-export-duties-set-to-rise/UPI-34831243538128/

    if u were to ask me, russia and opec are playing good cop bad cop, but it is hilarious that pro-market pro-capitalism people like professor and penny are so blatantly anti-russian that they try to skew everything against russia, even if it means siding with a cartel.

    Comment by lisa — May 30, 2009 @ 11:16 am

  12. Lisa, you bet I’m anti-Russian as defined by me as loathing all things political about Russia during their Communist and present Putin era. Russian politics have had and still do have murderous consequences and massive human rights abuses that only an ethically challenged fool would deny. I don’t like people that use, abuse, physically harm or restrict the lives of others, I don’t like sociopaths.

    Your juvenile labeling of opinions you don’t like using the broad stroke of “anti-russian” doesn’t move me at all. It’s out of the typical partisan lefty playbook of labeling any dissenting opinions on amnesty for illegals, affirmative action, Supreme Court appointee Santomayer, etc as “racist”. It’s fascist ploy to silence debate. It’s juvenile.

    And, in order to play “good cop bad cop” there has to be a pre-arranged agreement to use that script by definition. That’s the point of good cop/bad cop. You are grasping at the wrong metaphor.

    Russia publicly announced in December before that OPEC meeting that they would cut their oil production. It didn’t happen. They reneged. Hence, their public words mean nothing. How labelling me as “pro-market pro-capitalism” makes that fact any different is beyond me.

    Comment by penny — May 30, 2009 @ 1:24 pm

  13. I don’t think whoever wrote that read Solzhenitysn, or the Solzhenitsyn Reader, to know that there are plenty of people who can question modernity in all its shapes and guises and still not be authoritarian — whether they be Hindu, Buddhist, Catholic, Orthodox, Orthodox Jewish, or Muslim (rounding out the Sam Huntington list of “civilizations”). There is a world of difference between Soviet Communism and other worldly coercive systems and voluntary associations like monasteries.

    One of the disturbing things about the Professor’s rhetoric is that he is constantly conflating the Orthodox Church in Russia with the State. I’ve never seen him say a word about the thousands of hieromartyrs who resisted the Bolshevik/Soviet terror to death.

    “Russia has long been among the most powerful (both physically and rhetorically) advocates of the anti-liberal cause. After a brief dalliance with liberalism at the false sunset of history in the 1990s, it has resumed this historical role.” Huh? So China is ideologically ok with our values? Or we just give them a pass because they lent us five times as much money as the Russians? (Saudi Arabia probably exceeds the Russians in terms of their U.S. government debt holdings, and we don’t even need to go there either)

    “Post-1815, Russia was a leader of reactionary, anti-liberal forces in Europe.” The Russians saved Europe from its first fascist dictator, Napoleon, and absorbed 80% of the Nazi armies. Some historic gratitude here. If Russia is destined to be illiberal, then illiberalism saved liberalism’s ass twice, to quote the ugly American line to the French.

    “it is hilarious that pro-market pro-capitalism people like professor and penny are so blatantly anti-russian that they try to skew everything against Russia, even if it means siding with a cartel.” I think Lisa said it all. The Professor can pretend that every objection I offer is a hypothetical or completely off topic, but he has stated plenty of times that he supports NATO expansion into Ukraine, regardless of how many Ukrainians oppose it. Leaders have to be deciders, after all, democracy be damned, they should see things his way for their own good long term. Sounds like the hard Alinsky Left to me rather than the principled conservatives I used to know.

    This is why I think AK and I, however vast the gulf between our worldviews, somehow converge on the topic of Russia. Liberasts indeed, these ends justify almost any means to oppose such a seat of perpetual illiberalism and fatherland of tyranny. If that means supporting a liar like Saakashvili who hoped that American boys to risk their lives to bail him out after he started a stupid war he could not win, then so be it. If it means saying one thing today and another thing tomorrow just because the Russian government changed its position (the OPEC post, or supplying gas to Belarus, I could go on and on), then so be it.

    The Professor was at least honest enough to admit in that post that no one is ever going to change his mind.

    Comment by Charles Ganske — May 30, 2009 @ 6:55 pm

  14. And before everyone jumps on it, I am well aware that plenty of Russian leaders are liars too. My point is, they don’t ask America to fight their wars or extend unlimited security guarantees on their behalf. My beef is with American anti-Russia lobby people who want to do both. The Professor should know better about governments writing checks their people ultimately are unwilling to cash.

    Comment by Charles Ganske — May 30, 2009 @ 7:00 pm

  15. “I am well aware that plenty of Russian leaders are liars too”

    It’s rather odd that Mr. Ganske says so only here and never on Russia Blog, isn’t it?

    And even here, he doesn’t acknowledge a single specific lie by anyone.

    Comment by La Russophobe — May 30, 2009 @ 8:36 pm

  16. “I am well aware that plenty of Russian leaders are liars too”

    It’s rather odd that Mr. Ganske says so only here and never on Russia Blog, isn’t it?

    And even here, he doesn’t acknowledge a single specific lie by anyone.

    Fancy that!

    Comment by La Russophobe — May 30, 2009 @ 8:38 pm

  17. Too much ignorant lunacy to respond to, Charles. Especially given that I am hosting two Russian students who just arrived. Yeah. I’m a Russophobe, so go figure.

    A couple of quick comments. First, please provide specific citations to prove your assertion that I am “constantly conflating the Orthodox Church in Russia with the State.” Constantly? Really? You mean like all the time? OK–Back it up. Indeed, I think I am going to create the Ganske rule, which reads: “Anytime Ganske makes an assertion about something The Professor has said, he is required to provide quotations, citations, and links. Any comment containing such an assertion lacking quotations, citations, or links is subject to deletion without warning.”

    Second, there are exceptions to every rule, but the rule is clear; the Orthodox church has been the handmaiden of autocracy throughout Russian history. The subservient relationship of the Orthodox Church to the Russian state dates from the time of Peter I. Certainly the Church was oppressed during Soviet times. I mean, duh. Even then it should be noted that the hierarchy cooperated extensively with the Soviet authorities throughout the period. During Muscovite and Imperial times it is well known that the church was a bulwark of the state, and largely subservient to it. If you have some great revisionist insight, write a book.

    Third, post-1815 Russia was the leader of reaction. Again, this is about as controversial as asserting that the Pope is Catholic. For the historically challenged, yes, Napoleon was autocratic, but he was also the vanguard of modernity in Europe. The French Revolution and the reforms of Bonaparte were an anathema to Tsarist Russia. I’m not a Napoleon fan, or a fan of the French Revolution (being an admirer of Burke, and the Scottish Enlightenment, rather than the French Enlightenment and Revolution). But facts is facts. Russia wanted a return to the Old Regime, to monarchy and the old social order in Europe. It did so throughout the mid-19th century. Bringing the Nazis into it is so far off point it’s not even funny.

    Most of the rest of your comment is typical Ganske-free association with no logical coherence. You are of the Jackson Pollock school of rhetoric, throwing a bunch of stuff up on the wall.

    And regarding both you and Lisa. Can you people read English? I mean, really? For the second time, people, I did not side with the cartel. Read the damn post. Hell, I even quoted the relevant part for you people in an earlier comment. So read that. If you are going to oppose my position, fine. But argue against what I actually say, rather than against your 180 degrees from the truth version of what I said. Hence, the Ganske Rule.

    The ProfessorComment by The Professor — May 30, 2009 @ 9:12 pm

  18. To help you in your research, Charles: Here is the search link to all the times the word orthodox has appeared in a SWP post. Go to town.

    In the future, to facilitate your compliance with the Ganske rule, you may want to make use of the search function on SWP.

    The ProfessorComment by The Professor — May 30, 2009 @ 9:17 pm

  19. The “reactionary” nature of 19th century Russia had different stages. Alexander II’s reign brought about some reforms. Who knows what might’ve been if the left wing terrorists didn’t succeed in murdering him.

    The Hapsburgs asked for Russian military assistance in crushing the Hungarian rebellion. How open-minded were the Haspburgs? Yes, they did give the Hungarians freer reign. This had to do with the weakened state of their rule. Meantime, I recall John Lukacs (not known as a “Russophile”) saying that Finland as part of the Russian Empire had the greatest autonomy of any European nation under the rule of a monarchy.

    Napoleon was an expansionist aggressor. His support of the independence of some others was for good measure based on the Machiavellian instinct of weakening competing powers. On this particular, the Nazis did the same.

    Comment by Cutie Pie — June 1, 2009 @ 11:21 pm

  20. SWP:
    “In particular, it seriously undermines the case for a “realist” “reset” with Russia; what’s the point of negotiating grand bargains with such bald faced opportunists and liars?”

    Wait a minute, reset? What are you talking about? When America and Russia say they want to “reset” relations, that doesn’t have anything to do with criminal organizations like OPEC that work against both Russia and America. They don’t deserve to be treated fairly like a regular corporation or organization, why on Earth would you criticize Russia for undermining them? This blog gets more absurd every time I visit.

    Lisa:
    “but it is hilarious that pro-market pro-capitalism people like professor and penny are so blatantly anti-russian that they try to skew everything against russia, even if it means siding with a cartel.”

    Yeah, that’s precisely what differentiates this blog from a normal political blog. If Russia does something capitalist, SWP is a stout socialist. If Russia does something socialist, SWP is a stout capitalist. The only consistency in his ideology (*cough fanaticism*) is that he takes the opposite side Russia 100% of the time. Even when Russia does something good, SWP is always right there with his magnifying glass, looking for that speck of dirt on the freshly cleaned and waxed floor.

    On a somewhat related note, another one of his antics is making so called “predictions” that, again, 100% of the time take a doomsday approach to what’s going to happen in Russia. Never has an optimistic word been said about Russia’s economic situation on this blog, despite some obvious signs of having hit a bottom and a beginning of a recovery.

    Since SWP’s last post on how terrible the stock market was performing and how terrible the ruble was doing, the market has made gains of around 85%, the second best performing stock market in the world so far this year, and the ruble has made back half of its losses to the dollar. I wonder why we haven’t gotten any updates on those things yet…

    And remember that post about how desperate Putin was because he said inflation was going to slow? (Of course, you knew better!) Well since then it’s fallen by almost 2% to its lowest point since late 2007. Aren’t you going to apologize to Putin? Or me in fact, since I said the same thing in February to which you were quick to point out how ignorant I was.

    What about all those “ooooh internal fighting with Putin and Medvedev” posts? Why does that never materialize into anything? Could it possibly be that you have an overactive imagination?

    Don’t you get embarrassed being wrong all the time? I’m starting to wonder if maybe this blog is some sadistic joke on other Russophobes, you know, to get their hopes up only to have them crashing down when things don’t turn out so bad. But then I think of how much time and effort you must put into writing all this comedy…

    Comment by Bob from Canada — June 7, 2009 @ 7:12 pm

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