COMMODITIES: Uncertain but Untraumatic Year for Venezuelan Oil

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Jan 15 1998 (IPS) - Venezuela, the world’s third biggest oil exporter, predicted the crisis in Asia will make 1998 an uncertain year with a tendency for surplus offer, but is not expecting a repeat of the price fiasco of 1986.

Oil is suffering a serious drop in market price, hitting its lowest value in 45 months, during a season usually marked by rising prices, but the government insisted this is a passing phase, although it will mean losses for the producers in 1998.

In Venezuela, every dollar off the price of an export barrel means 1.1 million dollars less foreign income per day, explained Luis Giusti, president of the state petroleum company, PDVSA.

Giusti, who has headed PDVSA since 1994, said Asian demand had fallen by 400,000 barrels of crude per day and the gentlest winter for 60 years in the industrial north will bring an additional drop of 500,000 barrels.

This reduction of around a million barrels per day is compounded by the oil richness of Irak, which will be important in the first two months of the year due to the system established by the United Nations for the crude oil of this nation.

Similar situations are being experienced in other parts of the continent.

In Ecuador, the government announced emergency economic measures to fund the 1998 budget, as every dollar off the petroleum price means 75 million dollars less in the kitty in a nation where 50 percent of government expenditure is funded by oil income.

Mexico is also feeling the pinch, cutting back programmed public spending by 1.8 percent as a direct consequence of the “petrolisation of the fiscal income,” according to Interior Minister Jose Gurria.

Here, sales of crude represent less than 10 percent of total exports, but more than 40 percent of tax income comes from petroleum sales.

World oil consumption stands at around 74 million barrels per day, with expected expansion of two million more each year. For Giusti, these three factors and others which make the market tense could lead to a six month lag in this expansion, although the positive tendency will be maintained.

PDVSA is the second or third biggest oil company in the world behind the Saudi Aramco and the British/Netherlands Shell, with a record income of 4.7 billion dollars in 1997. The company also produces 80 percent of the nation’s hard currency and 24 percent of its Gross Domestic Product.

Giusti outlined various elements which work in favour of the rebalance of the market, including the probable recovery of the Asian countries due to multimillion dollar multilateral aid packages and the relaunch of exports, following devaluations to correct the over valuation of regional currencies.

Then there are the small reserves of oil in the hands of consumers, who discovered the benefits of this new strategic management of their purchases, a factor which also helps “the market to rapidly pick up its rhythm of growing demand again.”

The vagaries of the oil market, “when they occur in such a dramatic form, tend to have a equally rapid recovery,” said Giusti.

But he insisted that at real constant values, noone is forecasting a tendency to disproportionate increases or falls in price on the world oil market, due to the varied group of elements operating in the energy sector.

“If prices soar, oil consumption will be displaced by coal and gas,” within the fossil fuels, said the PDVSA president.

And if the prices go very high “political and economic correction mechanisms automatically come into action, because these affect the industrialised economies and the high cost oil producers, like the United States itself,” he added.

Giusti said since the last price fiasco in 1986, elements both within the market and beyond have caused adjustment to occur every time prices have gone beyond a floor and ceiling of 14 and 22 dollars respectively per US marker barrel.

He said the excess production by members of the Organisation of Petroleum Exporting Countries (OPEC) was not a determining factor in the fall in prices either.

For OPEC has a production level similar to that of November, when the 11-member organisation set revealed the surplus it had had up until then, an amount Giusti said was around 400,000 barrels per day.

In the case of Venezuela, he criticised the “self- flagellation” of domestic analysts who said the surplus Venezuelan offer had contributed greatly to the price crisis, as the nation’s surplus to its OPEC quota represents only 0.7 percent of world consumption.

Venezuela produces around 3.6 million barrels per day – 340,000 for the domestic market – said Giusti, when its quota from the beginning of the year was 2.6 million barrels per day.

Giusti stated PDVSA does not believe limiting extraction a valid means to tackle the price crisis, adding that its volume could in fact make up for the falling price of its crude, which was set at an average of 15.5 dollars for the year and will now be corrected to 14.2 dollars per barrel exported.