OPEC Cuts Thwarted as Brazil, Russia Grab U.S. Market

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"Russia has been trying to get a foothold in our market for a long time. . ."

As OPEC nations make their biggest oil production cuts on record, Brazil, Russia and the U.S. are pumping more, threatening to send crude back below $50 a barrel as demand slows.

U.S. imports from the Organization of Petroleum Exporting Countries fell 818,000 barrels a day, or 14%, to 5.02 million in January from a year earlier, according to the latest monthly report from the Energy Department. At the same time, imports from Brazil more than doubled to 397,000 and Russia’s increased almost tenfold to 157,000, a trend that continued in February and March, according to data from each country.

"OPEC has done a good job keeping oil in the $50 area, but they will have to cut substantially more, maybe more than they are capable of, if they want higher prices," said John Kilduff, senior vice president of energy at MF Global Inc. in New York. "You are going to hear greater calls for non-OPEC producers to cooperate and make cuts."

Imports fell by 148,000 barrels a day in January just as America's production increased by 153,000, according to data compiled by the Energy Department. More oil is flowing just as the slowing economy causes consumption to contract for the second consecutive year.

Algerian Oil Minister Chakib Khelil said March 17 that he was disappointed Russia hadn't cut production to support prices. Suppliers need prices in a $60 - $75 range to support production of higher-cost resources, Saudi Arabian Oil Minister Ali al-Naimi said on March 16 in Geneva.

Russia also lowered export duties this month to $15 a barrel from $15.70 in March to boost exports, the IEA said in the April 10 report. Brazilian production will rise 7.2% in 2009 to 2.54 million barrels a day, the IEA said.

In January, Russia and Brazil earned $23.2 million a day in exports to the U.S., based on the $41.92 a barrel average on the Nymex that month.

"Russia has been trying to get a foothold in our market for a long time," said Bill O'Grady, chief markets strategist at Confluence Investment Management in St. Louis. "With both gas and oil, Russia hopes to gain geopolitical leverage."

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