Venezuela Tries to Convince Oil Nations to Cut Production

Who Comes to the Rescue of Failing Emerging Markets?
  • Oil Minister Eulogio Del Pino meets Russia's Novak Monday
  • OPEC's oil output reaches record as Iran plans export boost

Venezuela’s Oil Minister Eulogio Del Pino faces an uphill battle persuading Russia and Saudi Arabia to cooperate in cutting oil production amid a supply glut that has pushed prices down more than 30 percent in the past year.

Concern that U.S. shale producers would benefit from any increase in prices after a potential cut is one factor that may keep Saudi Arabia and Russia from agreeing to reduce output. Iran’s plan to boost crude exports now that sanctions have ended is another complication. Del Pino is to meet Russian Energy Minister Alexander Novak in Moscow Monday before traveling to Qatar, Iran and Saudi Arabia, the world’s largest oil exporter.

“There’s a minimal chance the Venezuelans will get them to agree to anything,” Robin Mills, chief executive officer of Dubai-based oil consultant Qamar Energy, said by phone on Sunday. “I don’t think the conditions are there for an agreement.”

Oil has tumbled as the Organization of Petroleum Exporting Countries, led by Saudi Arabia, keeps the taps open to defend market share and make it harder for higher-cost producers to compete. That puts pressure on states like Venezuela, seen historically as a price hawk in OPEC for supporting output cuts, which rely almost exclusively on oil income to support the economy and have fewer financial reserves to cushion them against lower prices. 

Brent crude dropped from $115 a barrel in June 2014 to less than $30 last month. The benchmark grade slipped 0.2 percent to $35.92 at 11:27 a.m. in London.

Regional Empathy

“They’ve been calling for action for the last two years now,” said Edward Bell, a commodities analyst at Dubai-based lender Emirates NBD PJSC. “There’s empathy in this region for the harder-off OPEC members, but I don’t think that’s going to be enough.”

Venezuela suggested a possible meeting between OPEC and producers such as Russia that are outside the group, Novak said in an interview with Bloomberg Television on Friday. Venezuela’s President Nicolas Maduro said producing countries are “close to an agreement,” without specifying the accord. Saudi Arabia is willing to cooperate to manage oil markets so long as all of OPEC’s members and other producers also participate, Al-Hayat reported Monday, citing an unidentified person within OPEC.

Russian Record

Saudi Arabia produced 10.2 million barrels of crude a day in January, while Venezuela pumped 2.5 million, data compiled by Bloomberg show. Russia supplied a record 10.83 million barrels a day of crude and condensate in December, the International Energy Agency said on Jan. 19 in its most recent monthly market report.

Russia and Saudi Arabia will keep on pumping and forgo coordinated output cuts as OPEC seeks to shut down higher-cost suppliers, analysts at Goldman Sachs Group Inc. said.

“We continue to view a coordinated production cut as highly unlikely and ultimately self-defeating,” the analysts, among them Damien Courvalin and Jeffrey Currie, wrote in a report dated Sunday. Iran’s goal of boosting production and recovering sales it lost under sanctions makes such a step even less likely, Goldman said.

OPEC, which supplies about 40 percent of the world’s oil, decided in December to abandon its production target. The group pumped in January at the highest level since 1996, when Bloomberg began compiling data, due partly to output from newly rejoined member Indonesia.

“The Saudis may want to take some oil off the market,” Mills of Qamar Energy said. “They can talk to the Russians, they can talk to the Venezuelans, they can talk to the Nigerians, but they can’t talk to shale.”

OPEC Sessions

Members of OPEC hold twice-yearly meetings to assess the market, whereas the U.S. shale industry involves thousands of private firms working alongside the world’s largest oil companies. That makes it impossible for the U.S. to agree on production cuts, Mills and Bell said. Any decrease in output that results in higher prices would benefit the U.S. oil industry and encourage production, they said.

Bell of Emirates NBD said he sees signs that demand will rise this year and provide support for prices.

“A fundamentals-driven re-balancing is going to have an effect, and markets will start to recover by the end of the year,” he said by phone from Dubai. “The message from this region is, ‘It’s going to be a difficult process, but we’re going to ride it out.’ ”