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Tuesday, September 21, 2021
CARACAS, Jan 12 1999 (IPS) - Average oil prices plunged more than six dollars on the global market in 1998, the third shock for the petroleum industry after the crises of 1973 and 1979 – with the difference that the latest one has hit producers.
A report on the evolution of oil prices released by Venezuela’s Energy Ministry Monday confirmed that last year’s collapse in prices was indeed worthy of being described as the industry’s third major crisis, and pointed out that the trend this year would be for a continued slump, regardless of a recent rally.
Benchmark Brent Crude closed the first week of the year at 10.83 dollars a barrel, 53 cents up from the previous week – but nearly two dollars down on the 1998 average.
U.S. benchmark West Texas Intermediate (WTI) closed last week at 12.50 dollars a barrel, a dollar up from the previous week, but the same amount down from the 1998 average as Brent.
The Organisation of Petroleum Exporting Countries’ (OPEC) basket of seven crudes was selling at the start of the new year at 10.58 dollars a barrel – 64 cents up from the week before and 1.74 dollars down from the previous year’s average.
In 1998, Brent sold at an average price of 12.75 dollars, down from 19.06 dollars in 1997; WTI at 14.40 against 20.56 in 1997; and the OPEC basket at 12.32 dollars against the previous year’s 18.68.
In Venezuela – the only OPEC member in the Americas and the continent’s leading oil exporter – the local export cocktail went for 10.63 dollars in 1998, compared to 16.32 in 1997. Last week, it closed at 8.96 dollars, and the previous week at 8.21.
Prices stood at a similar level last year as those seen prior to the first oil crisis in late 1973, which broke out after an Arab oil embargo that lasted only three days but marked the start of an era in which the market was controlled by exporters, and by OPEC members in particular.
The big difference in 1998 was that the crisis benefited middlemen and consumer countries – although not the final consumers, because ordinary citizens in both the North and South only enjoyed a fall of a few cents in fuel prices, if any.
For fiscal reasons and to control consumption, the governments of importer countries kept their taxes on crude high, so much so that in Germany, for example, a consumer paid prices equivalent to 60 dollars per barrel of oil, even though Venezuela was paid only 10 dollars.
It is well-known that Venezuela depends on oil for 40 to 50 percent of its budget revenue, which fell by some six billion dollars in 1998. But almost 16 percent of Germany’s budget revenue also comes from fuel, mainly through taxes.
Oil authorities and investors in Venezuela pointed out that just like in 1973, last year’s crisis marked a shift in an oil market that has become increasingly complex, with a multiplicity of actors, which makes it difficult to control and hinders stability.
According to Venezuelan Energy Minister Erwin Arrieta, producers should respond to the new reality not with the classic formula of controlling supply, but by forging a new frontier of consumption, in the industrialised North and, above all, in the developing South.
“It is not a question of carving away at each others’ spaces, but of opening new spaces in order for us all to fit, with stable prices that are suitable for both consumers and producers,” Arrieta told IPS.
But while that happens, the recessive signs seen on the world’s economic horizon led Venezuela to plan its budget on the basis of a nine-dollar barrel, 1.63 dollars lower than last year’s price.
Luis Giusti, the president of the state-owned oil company Petroleos de Venezuela, told IPS that prices would remain on a downward trend in 1999, but that the big difference with 1998 was that the situation had now been assumed, and could be taken into account by planners.
He also pointed to signs that oilfields were beginning to close down because production at today’s prices was no longer profitable.
Production has already been shut down at several oilfields in Canada, the southern U.S. state of Louisiana and even in areas of marginal production in the North Sea, a situation that will extend to other parts of the world if prices fail to rally, Giusti warned.
Other local oil industry sources said that 450 drills were silenced worldwide in 1998. (Drills are one of the main indicators of oil production activity.)
That situation has not been felt in the market, however, because the major consumers have a record level of stockpiles, more than seven billion barrels, which covers close to 100 days of consumption.
In 1998, energy demand rose to 74.9 million barrels per day (bpd), only 700,000 bpd higher than the 1997 level, rather than the projected 2.2 million bpd rise based on which producer nations did their planning.
In the best of cases, demand will rise this year to 76 million bpd, according to the International Energy Agency – which links the world’s 23 biggest consumers – and other specialised institutions.
OPEC will analyse how to tackle the current situation at an extraordinary conference in March, which could be preceded February by another extraordinary ministerial-level meeting if an initiative by Kuwait prospers.
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