Santa Elena de Uairen, November 26th, 2014. (Venezuelanalysis.com) – According to Venezuelan foreign minister Rafael Ramirez, negotiations with Mexico, Russia and Saudi Arabia have failed to reach a joint pledge for OPEC nations to cut oil production.
Ramirez, who was replaced as president of state-owned oil company PDVSA in September but continues to be Venezuela’s OPEC representative, met his counterparts on Tuesday in Vienna to kickstart the discussion on the plummeting price of oil before Thursday’s hugely significant OPEC summit.
Between the United States shale boom and slower economic growth in Europe and China, the price of Venezuelan heavy crude dove from $99 per barrel in June to about $69 last week, prompting Ramirez’s diplomatic tour.
“Our foreign minister Ramirez made an extraordinary effort,” PDVSA president Eulogio del Pino said today. “He visited nearly half the world in a week and he got ahead of OPEC by proposing yesterday’s meeting… putting forth the rational point of view Venezuela and PDVSA have always pushed for.”
OPEC members Venezuela, Iraq, Ecuador, and Nigeria have all advocated for a cut in production as the quickest way to drive market prices back up. Statistics uphold this argument, considering OPEC estimations that global supply will exceed demand by more than 1 million barrels per day (bpd) in the first half of next year.
But after Tuesday’s Vienna meeting Saudi Arabian Oil Minister Ali al-Naimi told reporters that the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, Qatar and the United Arab Emirates, had reached a “consensus” not to do so.
Al-Naimi believes the twelve-nation OPEC group, of which Saudi Arabia is the largest producer, will follow suit. “We are very confident that OPEC will have a unified position,” he said, in reference to tomorrow’s summit.
Meanwhile, Russia’s most influential oil official, state-firm Rosneft’s president Igor Sechin, surprised some and quelled rumors by announcing the largest producing non-OPEC nation had no intention of reducing their output, either. Not even, Sechin said, if oil “falls under $60 a barrel.”
The Russian company recently signed a contract with PDVSA for the purchase of 1.6 million tons of petroleum and 9 million tons of derivatives of crude over the next five years.
While it makes sense that the GCC prioritize market share over barrel price, to a certain extent, Russian government coffers have already been hard hit by dropping prices, causing Sechin’s comment to raise some eyebrows. Indeed, many analysts claim the oil glut of the early 1980’s (which almost bankrupt Venezuela) contributed to the collapse of the Soviet Union.
“There are difficult times ahead, complicated times in terms of the oil market,” said del Pino today at the Venezuelan Congress of Natural Gas on Margarita Island, adding that PDVSA is “prepared for the worst scenarios.”
During the event, del Pino pledged an increase of 750 million cubic feet for PDVSA’s natural gas production in 2015.
Venezuela’s socialist government has prioritized investment in social programs, providing a wide buffer for the Caribbean nation’s popular classes. However, 2014 has already seen the nation strapped for cash in the face of numerous arbitration settlements and maturing bonds, and last week President Nicolas Maduro introduced a series of new economic measures to combat the alarming rate of inflation.
The measures, meant to boost national production and tax revenue, also include considerable investments in tourism and provide further support for minimum wage households.
However, oil makes up 97 percent of Venezuela’s export earnings, and the market shift has already caused the country a 30 percent loss in foreign income, Maduro said last week.
According to Reuters, PDVSA has put the possible sale of U.S. refinery Citgo Petroleum Corp back on the table.
People close to the matter have reported that Lazard Ltd, the investment bank hired by PDVSA to explore the sale, has set a late-December deadline for new offers, despite Venezuelan finance minister ruling it out last month.
Citgo runs three refineries in the United States, totaling an estimated value of up to $10 billion.