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Sunday, October 24, 2021
CARACAS, Oct 1 1998 (IPS) - The Mexican island of Cancun and the Italian city of Venice will be united by oil from Friday to Sunday as they host meetings of ministers of the Riyadh Pact countries and leading oil transnationals respectively.
The Saudi Arabian, Mexican and Venezuelan ministers have openly said their meeting Friday in Cancun will cover market developments and fulfilment of the promised withdrawal of 3.1 million barrels per day (bpd) from the offer, in order to push slumping crude prices back up.
The world’s leading private oil companies, on the other hand, made a point of stressing the price issue is not on their agenda in Venice Saturday and Sunday, shy of falling into the claws of antimonopoly authorities in their home countries.
But no one believes the tribulations suffered by the heirs of the “seven sisters” as a result of plummeting prices will be ignored in the unprecedented meeting attended by the leading executives of around twenty companies.
In an editorial, British daily “The Financial Times” warned of the “anguish” caused amongst consumers by the “Venice summit,” demanding the authorities to keep a close eye on any explicit or hidden decision which might arise from the conclave.
The same column recognised public and private oil producers are facing a dramatic situation, as this year their product is – in real terms – worth the same as during most of the period between World War II and 1973.
From 1973, when and embargo by the Arab countries caused the first oil “shock,” measures imposed by the Organisation of Petroleum Exporting Countries (OPEC) to boost the value of the raw material, and increasing demand, pushed the price of crude up to six times its previous level in as many years.
But from 1983, this tendency did a U-turn, and oil prices fell for three years after this, ending up at a level of less than 10 dollars a barrel, then going on to oscillate at between 15 and 24 dollars.
As October began, benchmark crudes are moving at a 1998 average of between 12.75 and 14.97 dollars per barrel, more than six dollars lower than 1997 figures and nearly eight down on 1996 levels, with losses to producers of around 120 billion dollars this year.
Ministers Ali Al Naimi, of Saudi Arabia, Luis Tellez of Mexico and Erwin Arrieta of Venezuela, will Friday hold the meeting suspended on August 28, when prices had plummeted and the two Latin Americans refused further cuts in production proposed by Naimi.
Now the climate has relaxed a little due to the gradual and seasonal pick-up in prices as autumn arrives amongst the big consumers, coupled with chance events, like the closing of the Mexican Gulf refineries due to hurricane Georges.
Arrieta and Tellez confirmed the meeting had no intention of reducing the per barrel price further, because the present agreement lasts until June 1999 and the main objective of the meeting is, precisely, to look beyond this date.
A meeting held between the three ministers in Riyadh in the first quarter of the year set the foundations for a voluntary commitment to reduce offer amongst OPEC meetings and the independent exporters led by Mexico.
In June, another cut back was proposed, to complete the withdrawal of 3.1 million bpd, 2.6 million of which was to come from OPEC.
But the saturation of a market bombarded for months by between 1.5 and 2.5 billion bpd of surplus, the extending Asian crisis and the global economic doldrums combined to keep demand low and prevent cutbacks having the desired effect.
Arrieta said before leaving Mexico the three members of the informal “petroleum superclub” were trying to think how to achieve the strategic objective of getting the market “its health and dynamism” back.
And the way to do this, he predicted, would be to promote the crossing of new frontiers to consumers in the developing South, opening space for greater offer and achieving a price balanced in a way that satisfies both consumers and producers.
The eyes of market operators and consumers will, in any case, be concentrating more on Venice than Cancun, due to the unprecedented event of a meeting between the private oil giants to discuss “issues and opportunities in the petroleum and gas industry.”
This was the description provided by the company organising the meeting, the US owned Petroleum Finance, in a communique released on the Internet. Its representative, Francoise Rowan, speaking to IPS from Washington, stressed “prices are not on the agenda.”
The four formal points which are on this agenda include the restructuring of the petroleum and industry and trade, technologicial changes and the geopolitics of the sector, along with its role in modern society.
The Financial Times said the private oil giants have motives to try and reach an understanding in order to improve prices and profits, as long as competition is not touched, reminding readers that informal cooperation is part of its habitual practice.
This influential publication said one benign and legitimate outcome from Venice would be new mergers, following British Petroleum’s spectacular buyout of US Amoco in August, in order to cover the urgent need for cost cutting and to support technological updating.
In an article entitled “the seven thin sisters,” Venezuelan magazine ‘Primicia’ this week analysed the problems the oil companies will bring with them to Venice.
For example the Anglo-Dutch Shell annouced a cut in spending in September, along with the closure of offices in some countries, following a 40 percent drop in net income and the perspective of prices staying low for at least three years.
The US concerns, Mobil, Texaco and Chevron opted in some cases for increased production, although they were forced to reduce this in others, due to prices of the crudes they produce nosediving between 32 and 38 percent on 1997 prices.
The main tool these companies have to confront the situation is their related businesses – like direct petrol sales.
British Petroleum, meanwhile, is one of the few companies to have made dividends during the first half year, thanks to an eight percent increase in production and the optimisation of marketing and refining, but it still ended this period with a 26 percent fall in financial outcome.
In recent months prices have been at unprofitable levels, given the high production costs in the areas of the world where some of these countries work.
Petroleum Intelligence Weekly said in its latest edition that defenders of the free market are facing a drastic problem: as the recovery of both price and demand will be slow.
This is one element which unites the guests in Cancun and Venice, as they all have a short or long term outlook of participation in the world oil offer, and are all suffering with current prices.
The difference is that the brunt of the problem is borne by the purses of shareholders and employees, in the one case, and by the national populations in the other.
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