Vladimir Putin Faces EU Backlash
Vladimir Putin on Tuesday faced an angry European backlash about his decision to halt oil supplies through the pipelines crossing Belarus.
As the Russian president made clear his determination not to back down in his dispute with Belarus, Angela Merkel, the German chancellor, denounced his actions as “not acceptableâ€, noting that even during the height of the cold war, Russia had been a reliable energy supplier to Europe.
Ms Merkel, speaking as the new president of the EU, said Russia’s latest display of energy muscle “hurts trust and it makes it difficult to build a co-operative relationship.â€
Mr Putin, speaking in a televised meeting with ministers in Moscow, stressed he wanted to do all he could to ensure that oil supplies to western Europe were not affected. But he escalated the dispute by telling his government to tell Russian companies to cut output because of the transit dispute.
Belarus wants Russia to pay an export duty of $45 per tonne of oil transported through Belarus. This is in retaliation for Russia slapping $180 export duty on crude oil it sells to Belarus.
In a sign of how seriously Germany now questions its reliance on Russia, Ms Merkel said the new dispute cast doubt on the wisdom of her country’s plan to phase out nuclear power by 2020.
Yet for all the political furore, oil markets on Tuesday shrugged off the latest geopolitical threat to supply, focusing instead on the warm US winter and strong inventories. At one point the price of oil hit an 18-month low point, dipping below $54 in New York, although it later recovered most of its losses.
The political row in Belarus – and Venezuela’s announcement of plans to take state control of its heavy oil projects – did little to deflect the downward trend in the price. The price of oil has fallen by more than 10 per cent since the start of the year and yesterday Mustafa Mohatarem, chief economist of General Motors, forecast it would fall below $50 this year. West Texas Intermediate crude for delivery in February fell to an intra-day low of $53.88 a barrel before recovering. Brent crude fell to an intra-day low of $53.64 a barrel before climbing back.
David Kirsch, manager of the markets intelligence service for PFC Energy, said the weak trend was likely to continue, with oil prices likely to test $50 a barrel. “I don’t see any positive news in the next week or so that is likely to lift prices,†he said.
The steep fall has caused concern among members of the Organisation of the Petroleum Exporting Countries, which last month agreed a supply cut of 500,000 barrels a day, with effect from February 1, to try to stabilise the market.
Some Opec members have a target of $60 a barrel for the basket of their output, which is typically about $5 a barrel below the benchmark prices in London and New York.
The US Energy Information Administration, a government agency, trimmed its forecast of world oil demand to 86.2m barrels a day for the first quarter of the year, down 300,000 b/d from its December forecast. The EIA forecasted US oil prices would average $64.42 a barrel in 2007 and $64.58 in 2008
The oil price fall has taken place against a sell-off in the commodities market: copper has fallen 11.3 per cent; zinc 16.2 per cent; and tin 13.1 per cent.