Economy & Trade, Headlines, Latin America & the Caribbean

OIL: South Should Take Advantage of OPEC Fund, Says Venezuela

Humberto Márquez

CARACAS, May 26 2004 (IPS) - Venezuela’s oil chief told the governments of Central America that OPEC is not the cause of the high international oil prices and recommended they seek compensatory resources from the OPEC Fund for International Development to help pay for their high energy bills.

The prices "are beyond the efforts of countries like Venezuela and OPEC itself," said Alí Rodríguez, president of the state-run Petróleos de Venezuela (PDVSA).

This week in Central America, Rodríguez has been underscoring Venezuela’s official stance that today’s high oil prices are related to structural problems in the U.S. oil refinery sector, the conflicts in the Middle East and speculation on futures markets.

Honduran Vice President Vicente Agasse met with Rodríguez and Venezuela’s Vice President Vicente Rangel Tuesday and repeated the request of the Central American countries that the Organisation of Petroleum Exporting Countries (OPEC) – of which Venezuela is the only Latin American member – boost its output in order to push down global oil prices.

The Central American presidents, meanwhile, will meet with Venezuelan leader Hugo Chávez and Mexico’s Vicente Fox during the Third European Union, Latin America and Caribbean Summit this weekend in Guadalajara, Mexico to ask for better pricing and payment conditions for Mexican and Venezuelan petroleum.

Under the San José Pact, since 1980 Mexico and Venezuela split the daily delivery of 160,000 barrels (159 litres each) of oil to a dozen Central American and Caribbean countries, financed through soft credits – low interest over long periods – for up to 20 percent of the bill.

In its first 20 years, the San José Pact mobilised approximately 3.0 billion dollars in soft credits to the Caribbean and Central America.

Furthermore, in 2001, Venezuela established the "Caracas Accord" model with several countries in the region, providing 80,000 barrels of oil under even "softer" conditions, with 53,000 going to Cuba.

For all of the Americas, the benchmark crude oil is the U.S. West Texas Intermediate, which on Wednesday saw its price climb again, reaching 41.62 dollars per barrel, close to its record of 41.85 dollars of May 17.

The price per gallon (3.8 litres) of gasoline in Central America is just over 2.20 dollars, comparable to the highest prices being recorded in some parts of the United States.

Honduras has expressed interest in joining the Caracas Accord scheme, said Rodríguez, but he stressed that the poorest countries in the region do have access to the OPEC Fund for International Development, which would help them attend to their fuel needs for development projects that would otherwise be postponed due to rising oil prices.

The OPEC Fund was established in 1976 as a means to help developing countries – both in public and private sector projects – and is fed by voluntary contributions from the 11 members of the association of oil-exporting nations.

As of April, the OPEC Fund had financed 738 development projects in 99 countries for a total of 4.26 billion dollars, and had distributed 668 credits to producers worth 310 million dollars. It has also taken part in other cooperation programs, contributing 5.47 billion dollars over three decades of activity.

Last year, the beneficiaries in the region included Guatemala, with 10 million dollars for rural development in its western region, Cuba, also 10 million dollars, for an irrigation project, and the Central American Integration Bank, which received 15 million dollars.

Two weeks ago, the presidents of Guatemala, Honduras, Nicaragua and El Salvador formally addressed OPEC to request a cut in oil prices, "keeping in mind the harmful effects they have on the economy in our region."

The four countries, later joined by Panama, demanded that their voice be heard at the OPEC conference slated for Beirut on Jun. 3.

Rodríguez took advantage of the Central American request to underscore the thesis that the factors that are driving up oil prices are beyond OPEC’s control.

First of all, "the situation of the gasoline markets in the United States, where for the past 30 years no new refineries have been built – although some have been expanded – has led to a deficit of 2.7 million barrels a day of fuel" in that country, which faces a demand of more than nine million barrels a day.

The Venezuelan oil company chief said the United States imports some 10 million barrels of petroleum a day, including gasoline, which is pushing up the price throughout the Atlantic Basin, and the high prices for the derivatives pull up the raw material: crude.

Secondly, Rodríguez pointed to the war in Iraq, occupied by the U.S.-led coalition, as well as tensions throughout the Middle East, "which generates a level of anxiety that impacts the security of supplies, and that is reflected in prices."

Thirdly, there is market speculation. "The real demand for petroleum in the world is 80.2 million barrels a day, but on the futures market they are dealing with twice that: 160 and sometimes 180 million barrels a day, which are only contracts, or ‘paper barrels’," Rodríguez said.

On top of these factors, OPEC has an overproduction estimated at 2.2 million barrels a day, above the quotas agreed amongst 10 of its 11 members (save Iraq) to produce a total of 23.5 million barrels daily – a maximum that could be changed by the OPEC ministers at the Beirut meeting.

The organisation’s members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

Since 2000, OPEC has defended its crude, establishing a price band – 22 to 28 dollars – that it says most benefits oil producers and consumers alike.

But so far this year, the price per barrel has been more than 30 dollars.

Iraq has been excluded from the production quota agreements since 1990, when it invaded Kuwait and opened the way for the first Gulf War. Today it produces just over two million barrels a day, meaning OPEC’s true output reaches 28 million barrels daily.

Under pressure from the United States and Britain, Saudi Arabia – the world’s leading producer – announced it would ask its OPEC partners in Beirut to increase the group’s output by more than two million barrels a day, which should bring down prices for consumers.

Venezuela, OPEC’s third leading producer in terms of volume, opposes a further opening of the oil spigots, and had been supported by the second oil producer, Iran.

But Tehran has been showing signs in recent days that it is leaning towards the Saudi proposal for more oil production.