Venezuelan Calls for OPEC to Respond to Sliding Oil Prices

Santa Elena de Uairen, October 14th, 2014. (venezuelanalysis.com)- Venezuelan foreign minister Rafael Ramirez alerted press Friday that his cabinet has “received instructions from the president to request an extraordinary OPEC meeting.” Ramirez was the head of state-owned petroleum corporation PDVSA until a September cabinet shakeup.

The Organization of Petroleum Exporting Countries (OPEC) is not due to meet until November 27,  but Venezuela’s urgency stems from the benchmark value of Brent crude, which has fallen steadily in recent months to reach US$86.17 today, the lowest its been in four years.

A founding member of OPEC, oil export accounts for 97 percent of Venezuela’s income.

Attributed to a surge in U.S. and Russian output, the decline comes at a bad moment for Venezuela, as PDVSA is due to repay US$3 billion of bonds maturing on October 28.

Oil ministers from Kuwait and Algeria dismissed the possibility of limiting production to encourage market stabilization. Both countries denied having been invited or alerted to any urgent meeting, in response to Venezuela’s plea.

Kuwait oil minister Ali Al-Omair said, “If we had a way to preserve the stability of prices or something that would bring it back to previous levels, we would not hesitate in that,” while insisting there was no room for countries to reduce production.

OPEC currently supplies 40 percent of the world’s oil, and recently its most productive members of the Persian Gulf region, including Saudi Arabia, Iraq and Iran, have offered deep discounts to buyers in Asia to maintain market share amid global surplus.

Though Venezuela is not the only oil country strained by the slump, analysts believe it’s unlikely that powerhouse Saudi Arabia will risk relinquishing control on Asian markets by curbing production.

Foreign minister Ramirez insisted Friday that it’s in every member state’s interest that OPEC “coordinate some type of action to stop the fall in the price of oil.”

“Especially,” he noted, “when we are convinced it has nothing to do with market situations but a manipulation of the price to create problems for big producing countries.”

Arbitration & Arrears

Last week, a day after Exxon Mobil Corp. was awarded US$1.6 billion in compensation for seized assets in Venezuela by the International Center for Settlement of Investment Disputes (ICSID), U.S. oil giant ConocoPhillips said it would seek a second arbitration against the Caribbean nation.

The ICSID already ruled last year that ConocoPhillips is due reparations, but the panel has yet to specify what the value of those are. Exxon Mobil was only awarded a fraction of the US$14.7 billion it originally sought, and ConocoPhillips appears to be aiming even higher to cushion the fall. The company has demanded US$30 billion so far, while details of the second are still unclear.

This brings the number of pending claims against Venezuela up to 29, at least 16 of which resulted from a series of expropriations of transnational oil companies led by Hugo Chavez in 2011-2012.

As president of PDVSA, minister Ramirez mentioned the possibility of selling Venezuelan owned Citgo Petroleum Corp. presumably before the extensive network of refineries and installations on U.S. soil became tangled in the imminent ConocoPhillips ruling.

In September, while visiting New York’s South Bronx, Venezuelan president Nicolas Maduro abruptly dismissed Citgo sale speculations by affirming the company’s plans to “strengthen investments” and expand the subsidized heating oil program which warms the homes of some 150,000 U.S. family homes in winter.

Maduro’s announcement, preceded by a meaningful “let there be no doubt…” seemed to be in direct response to Wall St. analysts, many of whom had been touting the Citgo sale as a sign of impending default.

After the declaration, Financial Times blogger Andres Schipani wrote, “If Maduro’s aim is to keep investors guessing, he is doing a fine job.”

Francisco Rodriguez of Bank of America-Merrill Lynch, who repeatedly affirmed Venezuela’s ability to make good on all pending debt in spite of a high-risk rating, was granted a rare visit to the vaults of Venezuela’s central bank in September. Rodriguez estimated that of the country’s US$21 billion in foreign reserves, US$15 billion are in gold.

However, the total dropped soon afterward, when the Caribbean nation paid back US$1.5 billion of debt that matured on October 8. The payment, while bringing reserves down to an 11 year low of US$19.8 billion, did little to end the decline in the country’s bonds, and Venezuelan debt continues to be the most expensive to cover in the world.

Of the US$3 billion PDVSA is due to repay of bonds maturing later this month, it has already bought back 60 percent of the debt, according to a company statement on Friday.

Since September’s cabinet shakeup, neither Maduro nor newly appointed economic vice president Rodolfo Marco Torres have given any clues as to the reforms that might sway investors and determine the country’s economic fate.

Venezuelan economics commentator Hernan Luis Torres Nuñez wrote yesterday in news forum Aporrea.org, “It should be pointed out that not making decisions is a way of deciding…. [it’s] a way of signaling that although the situation is very difficult, making decisions can worsen [things].”

Nuñez advocated “putting the economy in the freezer” until a time when “the political atmosphere calmed down.”

Under Ramirez, there had been talk of raising gasoline prices and unifying currency controls; proposals which Wall St. investors favored. While Maduro recently discarded the latter possibility during a weekly radio program, petrol prices have so far only been increased at the international pumps available outside border towns, while no decisions have been taken nation-wide.

Whether or not the “political atmosphere” calms down, pro-government analysts have pointed out that a gasoline increase would mean a harsh spike in inflation, which has been on the rise all year along with smuggling and hoarding levels, and complications in the import sector.

Many Aporrea.org contributers suggest the government get a handle of those issues first before any true reforms are carried out.

Meanwhile, American Airlines and Copa this morning announced slight increases in service to and from Venezuela.