RUSSIA - July 19 - OPEC Warns Of Oil Price War.

A senior OPEC official says it is prepared for a price war unless Moscow takes steps to curb its rapidly growing production. He says the cartel, which supplies about a third of the world's oil, is becoming increasingly frustrated by Russia's improving relationship with the US and its growing share of the world market. He says: "The Russians are playing a dirty political game with OPEC and it is becoming very hard to trust them. If they are keen on having a price war, so be it. It is time we abandoned the soft approach and became more aggressive". (The comments mark an escalation in the tension that has been building between OPEC and Moscow over the past six months. Russia, in common with Mexico and Norway, other large non-OPEC members, agreed to trim exports in the first half of this year in an effort to maintain oil prices in OPEC's $22-28/b. But many observers believe Russian producers kept volumes high through exports of refined products and exports of oil to neighbouring countries of the CIS, which were not covered by the loose agreement with OPEC. The OPEC official's comments follow remarks by OPEC Pres. Rilwanu Lukman that the organisation had "the reserves and the capacity" to respond to a price war with Russia. OPEC ministers are due to meet on Sept. 18 to decide whether to change the current production quotas. The OPEC official said an increase in output was backed by most ministers, with the intention of driving crude oil prices down by $3-4/b. The US has been encouraging Moscow to raise its oil production and exports as relations between the two countries have improved since Sept. 11. It sees Russian oil as a means of reducing OPEC's ability to fix prices and as a hedge against instability in the Middle East). According to Renaissance Capital, a Moscow investment bank, Russian crude oil production rose 8.6% year-on-year in the first half of 2002, and total crude oil exports rose 3.4%. In Feb. 2002, Russia briefly overtook Saudi Arabia, the leading OPEC member, as the world's biggest oil producer. Leo Drollas, oil analyst at the Centre for Global Energy Studies, said any move by OPEC to drive down the crude price would be "nonsensical", adding: "The only way OPEC could win the market share issue would be by dropping prices to $12-15/b and that would hurt OPEC countries more than Russia".