OPEC Rejects Production Cut, Venezuela Looks to Budget

Mérida, 28^th November 2014 (Venezuelanalysis.com) – As was expected beforehand, the Organisation of Petroleum Exporting Countries (OPEC) decided not to cut production to increase oil prices at the Vienna summit yesterday. Saudi Arabia and other Gulf states indicated their willingness to endure low prices in order to maintain market share.

The decision to maintain joint production at 30 million barrels per day is a blow to Venezuela and other OPEC members that sought to agree to a production cut to reverse the recent fall in oil prices that could squeeze their finances.

Over 95% of the South American nation’s export revenue comes from oil sales.  Further, the country has financial obligations including bond payments, arbitration settlements, debts with foreign companies such as airlines, and domestic spending commitments including extensive social programs.

Venezuelan heavy crude fell from $99 per barrel in June to $69 last week. This prompted an international tour by the country’s foreign minister and OPEC representative, Rafael Ramirez, to encourage other OPEC and non OPEC members to support a production cut ahead of the Vienna summit yesterday.

Slowed growth in the Western industrial economies, new supply from fracking, and geopolitical tensions have all contributed to the fall in world oil prices.

In an interview with Telesur following the Vienna meeting, Ramirez said that Venezuela still hoped the market would gradually recover to a “fair price” of $100 per barrel.

“In our country we’ve made preparations, our budget is made at $60 per barrel and is prepared for any circumstances. However, of course no one inside the OPEC is satisfied with an oil price below our expectations and we all have a common interest in maintaining stability in the market and a progressive recuperation,” he said.

Ramirez, who until September was also the oil minister and president of state oil company PDVSA, added that the OPEC had agreed to consider holding another meeting in 2015 to re-evaluate the situation.

Venezuelan president Nicolas Maduro reacted to the news by stating that priorities such as social and defence spending would be ring fenced in a potential budget squeeze.

“If it were necessary to cut something in the budget, we would cut luxurious expenses, our own wages, but never a bolivar of what goes to education, housing, and social programs,” he announced to national media.

The conservative opposition was more pessimistic about the impact of falling oil prices. Henrique Capriles, a state governor and twice opposition presidential candidate, said in a radio interview, “We are very worried about the fall in oil income. Lamentably this is going to lead us into being worse off, lowering the quality of life more”.