Russia, Belarus oil supply talks mired in deadlock

MOSCOW, Jan. 11 (Xinhua) -- Russia and Belarus failed to clinch a new oil supply deal during their talks on Saturday, which was the latest attempt to resolve a pricing dispute. Though both sides have expressed their willingness to continue negotiations, the standoff has raised concerns over potential supply cuts to Belarus and the European Union.

Belarus imported about 20 million metric tons of Russian oil last year at only 35.6 percent of the current crude export duty, which stood at 267 U.S. dollars per metric ton as of Jan. 1. The transit country consumes about a quarter of the Russian oil deliveries with the rest processed and pumped to the West.

Belarus was seeking a similar discount for 2010 but failed to strike a new agreement with Russia before the previous accord expired at the end of December.

Russia said it has offered to continue "preferential" terms this year, which allow Belarus to buy 6 million tons of crude for domestic consumption without tariffs but demand full import duties on some 14.5 million tons of oil bound for European markets.

Belarus insists all Russian crude should be duty-free, citing an agreement on customs union signed late last year. However, Russian Prime Minister Vladimir Putin argued last week that energy deliveries to Belarus were not covered by the customs union between the two countries and Kazakhstan, which came into effect on Jan. 1.

As negotiations repeatedly broke down over the New Year period, Russian oil flows to Belarusian refineries, Naftan and Mozyr, suffered a brief interruption before they resumed on Jan. 3.

The spat, coming as Europe is gripped by freezing weather, fueled fears about a repeat of disruptions three years ago, when Russia suspended supplies via Belarus to Germany and Poland.

Russian Deputy Prime Minister Igor Sechin, who led the Russian delegation at the talks, earlier pledged unaffected oil supplies to European customers while Moscow and Belarus were working on a new pact.

The dispute is the fourth time in five years that Russian energy supplies through Belarus or Ukraine have come into question around New Year holiday. Russia cut off gas deliveries to Ukraine about a year ago, leaving tens of thousands of Europeans without heating gas in the depths of winter.

The West accused Russia of using its vast resources to bring its former Soviet neighbors to heel, while Moscow said it wants simply to raise energy prices and transit rates to market levels after subsidizing its neighbors for many years with preferential terms.

"With both sides standing firm now, the dispute could get worse before it is resolved," Andrew Neff, an analyst at IHS Global Insight in Washington, was quoted as saying by Russian daily the Moscow Times.

Minsk's revenues from oil re-exports hit 10.7 billion dollars in 2008 and plunged to 6.5 billion dollars in 2009, accounting for35 percent of the country's total exports, according to estimates by Yaroslav Romanchuk, head of the Belarusian Scientific Research Mises Center, a think tank.

It is estimated that Russia's new offer means a 2.5-billion-dollar increase in costs for Belarus, or 5 percent of the country's gross domestic product.

If Russia prevails in the dispute, Belarus will earn 3-4 billion less this year, resulting in an economic shrinkage of 6-8 percent, Romanchuk said.

The dispute has also contributed to the oil price's surge to a 15-month high above 83 dollars per barrel recently. Urals crude, Russia's main export earner, rose to 80.37 dollars a barrel on Friday, its highest price since October 2008.

Germany and Poland are believed to be hit hardest once Russia halts shipments through the Druzhba pipeline. Germany depends on Russian crude for about 15 percent of its total consumption, and Poland buys from Russia to meet 75 percent of its market demands.

Minsk has threatened to raise the transit fee for its European customers more than tenfold, from 3.9 dollars to 45 dollars per metric ton, should Moscow not agree to its conditions, RIA Novostinews agency quoted an unidentified expert close to the talks as saying.

Belarus last week even warned of stopping electricity transmissions from Russia to its Baltic enclave of Kaliningrad in an apparent retaliation at the duty hike.

Sergei Kolchagin, a senior fellow at the Russian Academy of Sciences' Institute of Economics, said Minsk is highly likely to accept Moscow's terms since it has few other options.

Belarus would exert pressure on Russia by threatening to withdraw from their common air border security and air defense system pacts, Kolchagin said, although it seemed unlikely the bargaining would go that far.

Another possible solution would be Russian firms' acquisition of the Belarusian refineries, a Russian proposal that has so far received no response.

Source:news.xinhuanet.com/

Strong Stocks Buoy Oil Prices

LONDON—Crude oil futures rose Monday, after stronger European equities helped oil prices pare losses incurred earlier in the session and during Asian trade.

The front-month February contract was trading 49 cents higher at $78.49 a barrel in European electronic trading on the on the New York Mercantile Exchange. On Friday, the contract slid $1.39 to settle at $78.

Despite the small gains, market participants remained cautious about the prospects of sustained rises in oil price, with little sign emerging of improving supply and demand fundamentals.


Associated Press
Trade activity is expected to be light Monday, with a public holiday in the U.S. sidelining many participants. Oil prices garnered some support from European equity markets, which rose as higher gold and other metals prices supported basic resource stocks.

However, many participants were unconvinced that the crude oil market can break its recent bearish trend, which has seen prices retreat by almost $5 a barrel since Jan. 6.

Adding further doubt to bullish hopes is the growth in net long positions by speculative traders, who are expected to liquidate their positions and exit the markets if crude oil prices continue their weakening trend.

"Speculative traders have been increasing their net long positions by over 80,000 contracts, a 15% rise in the past month, and this could put on selling pressure should the oil price continue to drop below $74 a barrel," said Mark Pervan, head of commodity research at ANZ in Melbourne.

Separately, the prospects of increased production by the Organization of Petroleum Exporting Countries is also damping sentiment. The International Energy Agency last week estimated OPEC compliance to have fallen to 58% in December from 60% a month earlier, indicating a further loosening of compliance by the oil-producer group to their previously agreed 4.2 million barrel-a-day cut in supply.

"We have always reiterated that excessive output is worrying, given overhang stocks and the fact that OPEC remains the key swing producer with significant spare capacity at the moment," said Andrey Kryuchenkov, an analyst at VTB Capital. "The most important issue for the price outlook is for OPEC not to overproduce this year as swollen stockpiles do not need extra supplies at the moment."

The pricing dispute between Russia and Belarus over export duties continues to put oil flows to Europe at risk, with the latest reports suggesting Russia has diverted an oil shipment earmarked for Belarus to the Polish oil terminal of Gdansk. The Polish port will load a 100,000-metric-ton tanker with Russian oil at the end of January, a shipment that hadn't been earlier expected, Naftoport chief executive Dariusz Kobierecki told Dow Jones Newswires.

In other trading, the front-month March Brent contract on London's ICE futures exchange was 33 cents higher at $77.44 a barrel. The ICE gasoil contract for February delivery was $3.25 lower at $626.75 a metric ton, while Nymex gasoline for February delivery was 116 points higher at 205.70 cents a gallon.

Source:online.wsj.com/

Belarus assails Russia over oil talks

MINSK, Belarus - Belarus accused Russia of exerting "unacceptable" pressure in talks on oil prices, and said Sunday that Moscow's demands undermined attempts at closer economic integration between the two ex-Soviet neighbors.

A Russian energy official, meanwhile, said the price arguments with Belarus wouldn't affect Russian oil exports to the West through the Belarusian pipeline.

Russia is the main ally and sponsor of Belarus, but relations between the two ex-Soviet neighbors have been increasingly strained by financial arguments.

The Belarusian Cabinet said in a statement Sunday that the two neighbors had failed so far to agree on terms of Russian oil exports to Belarus. It said Moscow's demand that Belarus pays a higher tax on the bulk of Russian oil shipment contradicted an agreement on customs union signed late last year.

It said Russian officials had put an "unprecedented pressure" on the Belarusian delegation during Sunday's talks, and described it as "totally unacceptable."

Russia had said earlier that it was ready to provide tax-free oil for Belarus' internal consumption in line with the customs union deal, but would fully tax all the oil Belarus processes for exports to the West.

Belarus buys about 20 million metric tons of Russian crude a year, but consumes only about one fourth of that. The rest is refined and exported to the West, accounting for more than a third of Belarus' export revenues.

Belarusian experts have estimated that the Russian tax would cost Belarus about $5 billion this year, or more than 10 percent of its gross domestic product.

Belarus' Soviet-style economy heavily depended on Russian oil and gas supplied at a lower price compared with other ex-Soviet nations.

In Moscow, Mikhail Barkov, vice president of the state-controlled Transneft company that runs Russian oil pipelines, said that price arguments with Belarus wouldn't affect Russian oil exports to the West, RIA Novosti news agency reported.

In January 2007, Russia briefly cut oil exports to the European Union nations through a Belarusian pipeline as Moscow and Minsk argued over price.

That shutdown, along with natural gas cutoffs to Europe in January 2006 and January 2009 caused by contract disputes with Ukraine, raised doubts in Europe about Russia's dependability as a top energy supplier to the continent.

Source:cnbc.com/