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Thursday, October 6, 2022
CARACAS, Jul 3 1998 (IPS) - Oil prices closed Friday slightly higher than a week ago, described by Venezuelan Energy Minister Erwin Arrieta as a positive effect of the new cutback in production that went into effect Wednesday.
“We are pleased with the market’s initial reaction to the restriction of supply, because it has been gradual and stable,” Arrieta told a news conference.
The minister said Venezuela would scrupulously comply with its voluntary commitment to cut production to 2.845 million barrels per day (bpd), 525,000 bpd lower than February levels, for the rest of the year.
The prices of the global market’s benchmark crude oils were similar Friday to those seen a week ago, and tending to rise, according to the Venezuelan minister’s weekly report.
A collective 1.35 million bpd cutback in production, decided on in Vienna on Jun. 24 by the 11 members of the Organisation of Petroleumm Exporting Countries (OPEC), went into effect Wednesday.
A previous cutback of 1.245 million bpd in effect since April was unsuccessful in curbing the downward slide in oil prices.
The combination of fall in demand due to the Asian financial crisis, the mildest winter of the century in the industrialised North, a greater easing of restrictions on Iraq’s production than expected and a war of supply among exporters seeking to clinch markets led prices to plunge by 30 percent in the first half of the year.
Arrieta explained that the OPEC cuts would not be immediate, because reducing production takes a few days, in order to prevent damage to oilwells. The withdrawal will begin to be felt in around two weeks, he added.
The minister, one of the architects since March of the strategy by OPEC and independent exporters aimed at bringing supply into line with demand, said there was no intention of bringing about an abrupt shift in prices, “which would be negative for everyone.”
Mexico, on the part of independent producers, and Saudi Arabia and Venezuela representing OPEC members agreed Mar. 22 in Riyadh on the pact which gave life to the voluntary cutbacks.
Mexico, Russia and Oman, which participated in the Jun. 24 OPEC meeting in Vienna as observers, along with Norway, the world’s second largest exporter after Saudi Arabia, contributed to the reduction in supply with a joint cutback of 581,000 barrels.
Exporters are aiming at withdrawing a total of 3.176 million bpd from the market with respect to February levels. But the parties to the agreement admit that just as in April, compliance will not be strict.
Nevertheless, “the objectives will be met with 75 percent compliance,” Venezuelan oil industry expert Alberto Quiros commented to IPS. Quiros has taken part as an adviser to the meetings to discuss cutbacks.
Arrieta said OPEC estimates that during the current quarter world demand for oil will stand at 74.4 million bpd, and at 77 million in the last quarter, bringing the annual average to 74.75 million bpd.
In the case of OPEC, demand should stand at 26.49 million bpd up to October, and 27.35 million for the remainder of the year.
With the initial cutback in effect since April and the new one implemented Wednesday, OPEC’s collective production was brought down to 26.454 million bpd, including 400,000 bpd that Iraq is expected to contribute to the market as part of its accords with the United Nations.
The excess offer flooding the market since last year has led to unprecedently high stocks in the hands of large importers, equivalent to 92 days of consumption, which means balancing supply and demand will be slow and gradual, the minister acknowledged.
He added that in his view, a balanced price that could serve as the objective of exporters is 18 dollars for a barrel of benchmark Brent Crude.
This week, Brent Crude closed at 11.96 dollars, 30 cents up from last Friday, which brought the year’s average to 13.69 dollars, compared to 19.06 dollars in 1997.
The U.S. benchmark West Texas Intermediate closed at 14.31 dollars, 46 cents higher than last week, putting the year’s average at 15.29 dollars, with respect to 1997’s 20.56.
The OPEC basket of seven crude oils stood at 11.75 dollars, slightly up from last Friday’s 11.53, bringing the year’s average to 12.97 dollars, compared to 18.68 in 1997.
And the Venezuelan export cocktail was traded at 9.76 dollars, 24 cents higher than last Friday, which brought the annual average to 11.17, compared to 1997’s 16.68 dollars.
The president of Venezuela’s state-run oil company PDVSA, Luis Giusti, said there would be a third revision of the price per barrel, for the sake of the national budget, to between 12 and 12.50 dollars. The country’s revenues were initially projected based on a price of 15.50 dollars per barrel.
But Giusti added that a new adjustment in the budget was not on the books, because the oil industry planned to restructure several of its investments and would cut spending, in order to compensate for the fall in oil prices.
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