Venezuela wants OPEC price band restored
Chicago Tribune, 27 June 2012
Venezuela on Wednesday proposed that OPEC set an oil price band of $80 to $120 a
barrel, Energy Minister Rafael Ramirez told Reuters, bidding to restore a policy
the cartel tried 12 years ago in a failed attempt to control prices in a tight
range by adjusting supply. The Organization of the Petroleum Exporting
Countries in 2000 adopted a $22 to $28 price band, requiring its members to cut
or raise output in an effort to keep prices in that range for an OPEC basket of
crudes. The policy quickly proved unworkable, however, and increasing demand
from China pushed prices irreversibly through $30 in 2004.
"We need to restore the band system," Ramirez told Reuters late Tuesday. "It
could be between $80 and $120 right now, that would be sufficiently wide to
A Middle East OPEC official immediately dismissed the
idea as a non-starter.
"Having a band was never successful in the past
and won't be successful now," the official said. "Its OK to have a band when the
prices are going up, but what happens when the price goes down? You'll have to
keep cutting production? This is out of the question."
Iran, an ally of
Venezuela in OPEC, did not dismiss the idea out of hand, pointing out that the
$100 middle of the band proposed by Caracas is where many producers including
Saudi Arabia want prices.
"Venezuela is not the only country to believe
the price should be around $100. The question is how do we protect this level.
This issue should be discussed if it is proposed officially to OPEC," said
Iran's OPEC governor, Mohammad Ali Khatibi.
An official at OPEC declined
Venezuela's Ramirez, who is also head of state oil company
PDVSA, said a fall in global crude prices to $90 a barrel was a threat to core
oil projects around the world.
"Right now it's a case of holding on to
see if the prices are going down for circumstantial reasons, but if the
situation continues, we are entering a risk zone. Anyone who enters into play
like this in the oil market is shooting himself in the foot," he
Saudi Arabia, which said earlier this year it was happy with $100
a barrel, has shown no sign of cutting production to support prices that sank
last week below $90 for global benchmark Brent for the first time in 18 months.
Brent traded just over $93 on Wednesday.
Venezuela relies on oil for more
than 90 percent of export revenue and has been heavily critical of the Saudis
for increasing production to help suppress prices and support global economic
President Hugo Chavez's socialist government has been using oil
revenues to spend big on welfare projects ahead of an October 7 election, but
economists warn that the price fall will hit its coffers hard.