Venezuela turmoil may delay Opec cuts

The continuing strike in the Venezuelan oil sector sent crude prices rocketing higher in December and led to speculation that the Organisation of Petroleum Exporting Countries (Opec) might delay its planned production cuts.

Protests led by right-wing opponents of Venezuelan president Hugo Chavez – including many oil refiners – all but crippled Venezuela’s oil exports in mid-December.

Venezuela is the world’s fifth largest oil producer, behind Saudi Arabia, Russia, Norway and Iran, according to figures from the Energy Information Administration (EIA), the statistical arm of the US Department of Energy. Crude futures on the New York Mercantile Exchange (Nymex) closed at $30.10 a barrel (bbl) on December 16, a two-month high.

And the price of Opec’s basket of crude oil grades rose to $28.61/bbl, its highest level for two years. Opec’s production strategy is based on keeping its basket price within a $22–28/bbl range, and the price rise has led some to question whether the cartel will go ahead with a production cut of 1.7 million barrels a day (b/d) agreed on December 12.

A New York-based oil broker says Opec is unlikely to cut output while uncertainty over Venezuela continues. Cutting production further while prices are so high would both deprive its member of revenue and antagonise consuming nations, particularly the US, he adds.

Also in December, former Venezuelan energy minister Humberto Calderon Berti suggested that continuing unrest in his country could delay the US from launching military action against Iraq. Venezuela supplies about 13% of the US’s total oil imports – about 470 million barrels a year – behind only Saudi Arabia, Canada and Mexico.

Analyst opinion varies on the probable effects of war with Iraq on oil prices, but all agree prices are likely to spike immediately following any attack.

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