Oil Wars

There has always been tension within OPEC over how aggresive the cartel should be in trying to boost prices. Currently Venezuela and Iran are price hawks argueing for production cutbacks to ensure continued high prices. Saudi Arabia and Kuwait have generally been very sensitive to U.S. concerns about prices and have sought to increase production when the U.S. insisted on it. It appears that Iran and Venezuela may be getting the upper hand:

OPEC President Edmund Daukoru said on Friday that the global oil market is oversupplied by about 2 million barrels per day.

"The market is indeed well supplied with crude today," Daukoru told an audience at the National Press Club in Washington, ahead of next week's meeting of the Organization of the Petroleum Exporting Countries.

Daukoru's view that the global market has plenty of crude oil differed with that of the United States, the world's biggest oil consuming nation, which believes the market needs more oil.

U.S. inventories of gasoline, which account for 40 percent of America's daily oil demand, are the highest since June 1999 and Daukoru has said those big stocks will be a factor at next week's OPEC meeting.

U.S. Energy Secretary Sam Bodman said he does not know what OPEC ministers will decide about their production levels when the cartel gathers in Vienna. However, Bodman said during his meeting on Wednesday with Daukoru that OPEC's oil was needed based on high prices.

"I expressed the view that as best I could tell the markets were calling for more, not less, oil," Bodman told reporters in a briefing earlier on Friday.

Even though crude prices have stayed high, Bodman said there are no signs the global economy is "suffering in any major way" due to oil costs.

This sort of news tends to fly under the radar, even in Venezuela. Yet it is vitally important. Oil revenues consitute about 80% of Venezueala's export earnings and 50% of its governments budget. So the price of oil is the determining factor in how Venezuela's economy does. And that price can fluctuate wildly based on small imbalances in supply and demand. One of energy minster's Rafael Ramirez's most important functions is monitoring world petroleum supplies versus demand very carefully and making sure OPEC is pro-active in avoiding oversupply. Then he has to work hard to ensure that other OPEC members are in agreement on the needed cutbacks. This is not any easy job and the consequences of failure can be severe for Venezuela. Fortunately, from this, with the head of OPEC even seeing markets as oversupllied, it looks like he is on top of the situation.

UPDATE Here is a confirmation of the necessity of OPEC cutting back production by between 500,000 and 1,000,000 barrels a day from an rather suprising source:

Una perspectiva del mercado petrolero
Luis Giusti
El Nacional


Durante el año 2005 la demanda petrolera mundial aumentó en 1,3%, equivalente a 1.100.000 barriles por día (BD), en marcado contraste con el año 2004 cuando ese aumento fue de 3.000.000 BD (3,7% ). Sin embargo, los precios del petróleo, que habían aumentado en 30% en 2004, saltaron en 40% el año pasado. La explicación principal está en que el ritmo de aumento de la producción no-OPEP se estancó durante 2005, lo cual implicó que la demanda incremental apenas si pudo ser cubierta por la OPEP produciendo 30.300.000 BD, casi a máxima capacidad.

El Centro de Estudios Globales de Energía en Londres anticipa que durante el corriente año la demanda petrolera aumentará en 1.300.000 BD (1,5% ). Al sumar los nuevos barriles no-OPEP que se planifica incorporar durante el año, se obtiene un total de 3.000.000 BD, lo cual generaría un alto excedente de suministro que aflojaría los precios. Pero la restauración de la producción diferida en el Golfo de México por los recientes huracanes ha sido muy difícil y aún se mantiene en 400.000 BD, en adición a 450.000 BD diferidos en Nigeria por conflictos internos y 200.000 BD en Irak por razones similares. En consecuencia, CGES calcula que el suministro no-OPEP reanudará su crecimiento en 2006, pero en la modesta cantidad de 1.000.000 BD (2% ). Aún así, la OPEP tendría que reducir su producción a 29.300.000 BD en promedio para el año (una reducción de 1.000.000 BD), si desea que los inventarios no aumenten de los actuales niveles. Sin embargo, con la demanda mayor que la oferta en 600.000 BD durante el primer trimestre, los precios se mantendrán altos durante todo el primer semestre (crudo Brent en 61 dólares por barril). Pero llegado el tercer trimestre los inventarios habrán alcanzado 77 días de cobertura, lo cual aflojará los precios. Si la respuesta de la OPEP fuera un recorte hasta unos 29.000.000 BD, los precios no caerían por debajo de 50 $/B durante el segundo semestre.

Unfortunately I am a little under the weather right now and don't have the energy to translate this. But the point this person makes, is that non-OPEC sources coming on line this year a likely to slightly outpace the increased global demand for oil. So, in the authors estimate, if OPEC want to keep prices near were they are today it needs to cut a million barrels off its quota. And who is the person making this astute observation that confirms the position of Venezuelan oil minister Rafael Ramirez? None other than Luis Giusti, who as PDVSA president prior to Chavez coming to power, always advocated maximizing production, prices be damned. Why the change of heart? Don't know. Maybe it isn't one. Maybe this is just an analysis but now what he would actually do if he was back in power. Or maybe that he no longer benefits personally from PDVSAs unchecked growthed and can analyze things more objectively he comes to the conclusion that Chavista oil policy is pretty good after all.
|

A couple economic odds and ends came out today that may be of interest.

First, remember the Venezuelan purchase of Venezuelan bonds that the opposition has been yelping about. As reported before, a lot of them have since been sold to private investors and banks that wanted to buy them. Today the Finance Minister, Nelson Merentes, mentioned that Venezuela has made a $75 million profit on the bonds it has sold so far. Thats probably more than the dollar value of the oil discounts that Citgo has given in the U.S. and that a lot of opposition types have been losing sleep over. Hopefully this news will help them sleep easier.

Secondly, there is good news on the inflation front. Not only is inflation going down but the consumer price index actually was a NEGATIVE .4% in February. Yes, that means prices dropped. The main factor in the drop was a decrease in the cost of basic foodstuffs resulting from increased supply of them.

And to think the opposition has been warning about inflation being about to spin out of control at any moment. Looking at the graph below of annualized inflation rates it looks like it is doing anything but:


So the nervous nellies in the opposition should stop being so nervous.
|

Venezuela has historically been afflicted by a lack of true political parties which base themselves on a political platform rather than the personalities of their self appointed leaders. Non-existant is the Venezuelan political party that fills its leadership roles through elections.

Of course, the Chavez led MVR, which should be leading the way on this, has had an on-again, off-again, on-again attitude towards primaries - having them for the local elections, not having them for the National Assembly elections, but now having them again for some mayoral elections. So the Chavistas attitude towards party democracy is somewhat schizaphrenic.

At least the Venezulean opposition doesn't get bogged down in any of this Chavista whishy washyness. They are very consistant in saying no to primaries. The latest example of their contempt for democracy was reported in Ultimas Noticias today. Apparently there was some discussion of primaries in the opposition umbrella group "Together for Venezuela" (Juntas por Venezuela). One of its leaders, Jesus Torrealba, said that primaries "were desireable, but improbable". He added "its not an accident that William Lara [a Chavista political leader - ow] put forth the possibility of primaries within the opposition. That would be the best gift for the chavistas because it would be a traumatic process [?!?!?!- ow] because there is not enough time to organize them and deal with any collatoral effects"

So in lieu of primaries another Together for Venezuela leader, Diego Bautista Urbaneja, proposed that potential candidates "go to the street, give their reasons for being a candidate, give their proposals, and be measured via opinion polls". Great idea, instead of primaries just have Datanalisis decide who the candidates will be. Actually, given that Chavez is way ahead even in the Datanalsis polls I wonder if the opposition would agree that the actual presidential election is unnecessary and accept to declare Chavez president for another six years based on the polls?

But finally we have yet another opposition leader, Jose Luis Farias, step up to the plate and give the real reasons:

"The idea of primaries is in the freezer, and what we are really looking for is, in the first place, a consensus between different proposals for choosing a candidate, but at this time the prinicipal thing is to advance a general opposition agenda, that is to find agreement between the different tendancies.

Primaries aren't possible because the only entity that could carry them out, SUMATE, is against participating in elections and for that reason they can't be held"

I guess it makes sense. If you don't even believe in participating in general elections why would you believe in holding internal elections? Given how badly, in their view, democracy has screwed up the country the last thing they would want is for democracy to screw up their political parties too.
|

Given that the Bolivarian Revolution keeps going from victory to victory not only in Venezuela but throughout Latin American it is only appropriate that the Simon Bolivar float won first place in Rio's famed Carnival (thanks to Ann O for pointing this out).





|

Recently in the comments section of the blog there has been some discussion around the inability of the Venezuelan opposition to take responsibility for its own actions. In thinking more about this I think I know what their problem is - their choice of role models. Who after all is more of a role model for the opposition than the U.S. government? And who is pretty darn bad themselves at taking responsibility for their own actions? None other than the U.S. government.

Today we have a perfect case and point of this - the U.S. government is going around and issueing report cards to other countries on their supposed short comings in the "war on drugs". Needless to say the U.S. had critical remarks regarding Venezuela. However, I won't even dignify them by reviewing them here. Because to do so obscures the larger point which is why is the U.S.'s addiction to drugs somehow everyone elses problem?

In this "certification" process the U.S. issues a laundry list of complaints about how others aren't controlling their borders, or are having drugs cultivated on their lands, or have had drug gangs corrupt their law enforcement agencies. And, according to the U.S. governments logic, it is these failings by others that create the U.S.'s drug problem. The fact that the U.S. has millions of pot heads and crack addicts and rich people snorting cocaine at exclusive parties presumeably isn't the problem. Nor is the fact that the U.S. can't even controll its own borders and stop drugs from coming into the country. Nope the U.S. isn't going to look itself in the mirror and say "we have met the enemy and he is us". After all, why should well to do white people have to fess up to their shortcomings when their are some many poor brown and black people that can be blamed for everything?

Quite frankly this whole U.S. drug policy is so disgusting, so hypocritical, so self-serving that someone really needs to tell them to go f*$& themselves. I mean really, how many more Mexican police officers, or Colombian politicians, or Brazilian soldiers should have to die just so people up north can keep living in denial about their own problems? But unfortunately most countries can't do that because then they'll lose US funding that they can ill afford to lose. Venezuela though, doesn't depend on U.S. funding. So maybe vice-President Rangel will do everyone a favor and tell the gringos where they can put their worthless certification reports.
|

Ok, this Citgo thing of helping out some Americans by giving discounted heating oil is really starting to get out of hand. You would think that it would be a simple matter of Venezuelan making the donations and Americans saying "thank you". But with a gazzilon right wingers floating around the U.S. things aren't quite so simple. For example, check out what is happening in Conneticut:

Meanwhile, Republican Connecticut Gov. M. Jodi Rell asked state Attorney General Richard Blumenthal on Tuesday to determine whether state law prohibits private, nonprofit energy assistance agencies from accepting discounted Venezuelan oil.

One of Rell's Democratic rivals for governor this election year, New Haven Mayor John DeStefano, recently announced that his office and the Citizens Energy Corp. in Boston have secured 4.8 million gallons of oil through the Venezuela-Citgo Heating Oil Program. The program will provide discounted heating oil to New Haven residents whose eligibility is determined by low-income and heating-assistance programs.

DeStefano has also written to Rell about a plan to work with the state's nonprofit community action agencies to distribute the discount heating oil. But Rell said she wants an opinion from Blumenthal before endorsing such a concept.

"I think what the governor's questions do will successfully postpone anyone getting affordable heating fuel during heating season," DeStefano said.

So instead of letting thousands of her constituents get a freeby this Governor wants her Attorney General to see if taking freebys is legal?!?!?!? Well but of course, you wouldn't want to break any laws by accepting a gift, now would you? That's why when I bought my wife a diamond ring she of course refused to accept it saying "thanks honey, but before I can accept something like this I have to first check with our attorney to see if its legal, I don't want to break any laws". And thats why even if I bumped into Donal Trump on the street tomorrow and he offered me a check for a $100,000 I'd have to decline pending approval from my lawyer!!!

And come to think of it, if it turns out that accepting discounted home heating oil really is a crime what is going to happen to all the people in Vermont, New York, Boston, Maine, Delaware, and elsewhere that have already accepted it? They can't really put them all in jail, could they? I don't think Vermont has enough jail space to hold all the offenders. Maybe they will just have to build a wall around the state and declare all of Vermont a maximum security prison.

On a less sarcastic note it does appear the jerk Joe Barton, who initiated the investigation of Citgo for giving discounted oil, must be getting some heat (no pun intended) on this issue. After all he sure seemed very defensive on this issue in his last interview:

2-22-06 transcript of interview with House Energy and Commerce Committee Chairman Joe Barton and Dan Grech, Marketplace reporter, Americas Desk/Miami
DAN GRECH: Thank you so much for calling me. I know you’re just coming out of another meeting and I appreciate your taking the time to talk with me. I’m working on a story for this afternoon’s show and I’m just going to have a few seconds, a few minutes now to talk to you about it, basically about the subsidized oil program by CITGO and some of the concerns you expressed in the letter you sent to CITGO. Would you tell me sort of briefly what led you to write that letter?

CHAIRMAN JOE BARTON: Well, we’re not opposed to oil companies, of any stripe, giving heating oil or selling heating oil at lower prices to lower income recipients. That’s a good thing, not a bad thing. What we are opposed to and concerned about is when you have an oil company that’s nationalized, that’s owned by a government, and that government is controlled by an individual like Mr. Chavez of Venezuela, that they use their oil for political purposes. And this particular program, it does appear that the president of Venezuela is using it for political purposes in the United States. So we want to get from the company their criteria and exactly how the program is operated and things like that. But obviously the federal government, my committee that I chair, just authorized in the energy bill, and actually funded an increase in low-income heating assistance to the tune of a billion dollars. That’s real money. It won’t all go for home heating oil -- it’ll go for a variety of heating assistance programs throughout the nation. So we’re not opposed to helping low-income Americans with their heating and cooling needs. We’re just a little bit anxious about a president of a nationalized company perhaps using it for political purposes that are not in the best interests of the United States of America.

GRECH: One of the things that’s been commented on, and I think Chavez has mentioned it, is that the world’s richest country isn’t doing enough to help its poor so he’s decided to pitch in. Do you think that’s unfair?

BARTON: Well, I think it’s not factually based. Again, the LIHEAP [Low Income Home Energy Assistance Program] program this year will spend in the neighborhood of two billion dollars directly on home heating, on heating and cooling assistance, and that’s just one program. States have programs; the federal government has other programs. Many private utilities have special needs programs. So it’s certainly not fair for him to say that we’re not doing a lot. We probably, I think it’s a true statement, we do more in this country than he does in his own country.

GRECH: You know one thing that you mentioned in your letter that President Chavez’s purportedly altruistic motives may camoflage his true motivations. What do you think his true motivations are here?

BARTON: Well, I don’t want to speculate on that. That’s one of the reasons we’re seeking the information that we’re seeking. And, we’ll see. But, he is definitely not... You know, we have a home heating oil reserve that Congressman Markey and I established several years ago in a prior energy bill. You could give, if he is totally altruistic, his company could give, the company, the Venezuelan national oil company, PDVSA, could give the heating oil to that reserve. He could give it to the Department of Energy. There are any number of things he could do so that there would be no hint of any political manipulation. And he has tended to pick particular states and particular congressional districts and things like that. And so we just want to see what their own documents show.

GRECH: You know, it’s interesting, there is an irony, of course, to this because Venezuela is the only OPEC country and CITGO’s the only major oil company that’s responded to the call from the Senate to help out with heating oil. It’s just not the one I guess we wanted to have help us.

BARTON: We already have a number of national federal programs specifically designed that provide much orders of magnitude more assistance than the program that he has initiated. Again, it is not a bad thing for anybody to want to help people that don’t have the means to help themselves. But I think it is a fair question, given his statements and his antipathy towards the government of the United States, just what his motivations are and what the criteria are. I think that’s a legitimate line of inquiry.

GRECH: I appreciate you taking the time to talk with me. Is there anything you wanted to mention?

BARTON: We do have indications that the U.S. affiliate that’s headquartered in Houston is going to cooperate and I don’t think this will be something that drags on. I think we’ll get the information and if we decide to do a hearing, there will be an open, balanced hearing. It may be that we get the documentation and the documents and that we can dispose of this without even doing that. So it’s, right now we’re just in the fact-finding, gathering information stage.

GRECH: What led you to be concerned about this? What got this onto your radar?

BARTON: The way it was, the way Chavez portrayed it in some of his public statements. And then the way that it appears that they were expanding the program. I think it’s time to look at the facts. And then he, some of his statements have not been… His latest statement about President Bush comparing him to Hitler. I think it’s just beyond the pale.

GRECH: OK. Thank you very much. I really appreciate it.

BARTON: Thank you.

Oh, so it was Bush being compared to Hitler that started this whole thing. Nothing to do with his top campeign funders, aka Big Oil, being made to look bad. Glad he cleared that up. Now, if we could only get him to go after those $7 billion in unpaid royalties to the Federal government by Big Oil.
|

Today, February 27th, 2006 is the 17th anniversary of the massacre known as the Caracazo. On this date in 1989 the government of Carlos Andres Perez sent the army into the streets to put down, with bullets, the huge popular protests against his stringent economic package which involved increasing fuel and transport prices. With "shoot to kill" orders the army did manage to stop the rioting but at a price of hundreds, or even thousands, of civilians killed. To this day no one knows for sure how many died.



This vicious massacre forever changed politics and in many ways can be said to have paved the way for Chavez's rise to the presidency. To me it is rather ironic that some in the opposition complain about Chavez's government somehow being militaristic yet the only government which had the army actually gun people down in the street was the opposition hero, Carlos Andres Perez. I guess the fact that he only gave the orders and didn't actually pull a trigger makes him inoccent in their eyes. Maybe in their eyes, but not in historys eyes and not in the eyes of the great majority of Venezuelans who will indeed remember the significance of this day even in the middle of their holiday.










|

Last week I did a post on what a jerk Congressman Joe Barton was for ordering that Citgo be investigated. Fortunately, this outrage didn't go unnoticed - Juan Gonzalez of the New York Daily News is on the case (hat tip to LANR):

Big Oil fan after little man

Rep. Joe Barton, the powerful Texas Republican who is chairman of the House Energy and Commerce Committee, launched a bizarre investigation last week into possible antitrust violations by a major oil company.

You will be surprised to learn that Barton, one of the top recipients in Congress of campaign donations from the energy industry, is not probing whether ExxonMobil or Chevron or any of the other oil giants engaged in price gouging when gasoline and heating oil costs skyrocketed the past few years.

No, the good congressman has set his sights on the only oil company that actually dared to lower its prices last year - at least for the poorest Americans.

In a Feb. 15 letter to Citgo, the Houston-based company owned by the Venezuelan government, Barton demanded that company officials produce by tomorrow all records, minutes, logs, e-mails and even desk calendars related to Citgo's novel program of supplying discounted heating oil to low-income communities in the United States.

The Citgo program, which kicked off late last year in Massachusetts and the South Bronx, provides oil at discounts as high as 60% off market price.

Since its inception the program has expanded to low-income communities in Delaware, Pennsylvania, Vermont, Maine and Rhode Island. Local politicians, desperate for ways to reduce energy costs for their constituents, have welcomed it with open arms.

Here in New York, Harlem Congressman Charles Rangel will soon announce an expansion of the Citgo program into upper Manhattan.

All of this unexpected corporate philanthropy has made Barton and other House Republicans furious. Citgo's oil-for-the-poor program, after all, was the brainchild of Hugo Chavez, the fiery populist president of Venezuela who has become one of the most strident opponents of the Bush administration.

"The bellicose Venezuelan decided to meddle in American energy policy, and we think it might prove instructive to know how," Larry Neal, deputy staff director for Barton's committee, said yesterday.

Barton's letter lists a bunch of questions he wants Citgo to answer, including "how and why were the particular beneficiaries of this program selected" and whether the program "runs afoul of any U.S. laws, including but not limited to, antitrust laws."

Rep. Ed Markey, a Massachusetts Democrat, is flabbergasted by Barton's investigation.

"The Republicans are on another planet when it comes to energy policy," Markey said.

Instead of doing something about skyrocketing oil prices, Markey said, the Republicans are probing "a charitable donation of heating oil to relieve the suffering of a few thousand American families."

Barton, however, is not as nutty as he sounds.

He is well aware that Citgo's limited discount program will have no influence on American energy policy. But it has created a huge public embarrassment for Barton's friends in the major oil companies, all of which recently announced record-shattering profits for 2005.

ExxonMobil, for example, reported $36 billion in earnings last year. That's the largest profit ever recorded by any company in the history of modern commerce. It works out to an average of $98 million in profit for every day of last year.

Oil profits have gotten so obscene that a lot of Americans are getting fed up, and pressure is mounting on Congress to do something.

That's where Barton comes in. He's the closest thing on Capitol Hill to a mouthpiece for Big Oil.

During the last election cycle, he was second only to fellow Texan Tom DeLay in the amount of oil industry contributions. During two decades in the House, Barton has raked in nearly $2 million in campaign donations from oil and electric companies.

He is such a rabid defender of the energy industry that when a group of scientists issued a damning study last year about the growing danger of global warming, Barton immediately launched one of his shotgun investigations. He fired off letters to each of the scientists and demanded that they list all the sources of their funding and provide him with their research data and notes.

Now Barton is after Citgo, the oil company that dared to do the unthinkable - lower oil prices for poor Americans.

Earth to Barton, call home.

They only thing that escaped Juan's attention is that at the very same time Barton is investigating Citgo for selling discounted oil he is doing nothing about $7 billion dollars in unpaid royalties by big oil. I sure hope it isn't those campeign contributions that are clouding is judgement.
|

Last Thursday I did a post that gave some information on who put Venezuela in debt. Today I can do a much happier post going over a little bit of how the Chavez government is now working on getting the country out of debt.

According to Venezuelan Finance Minister, Nelson Merentes, Venezuela will pay down 3.9 billion dollars of its foriegn debt in bonds and another $813 million in debt with multilateral organizations for a total debt reduction of $4.7 billion. This will reduce its foreign debt from $31.06 billion to $26.350 billion dollars. This will also save Venezuela $675 million in debt service this year alone. That is not to even mention savings that result from an increase in Venezuela's credit worthiness which is already going up according to this Bloomberg article!

So while the opposition has very hypocritically tried to blame Chavez for Venezuela's high debt load (most of which was run up by them when THEY were running the country) we now see that the debt went up during the opposition led oil strike and that now that the economy has fully recovered from that calamity the government is paying down the debt.
|

As I am sure all Oil Wars readers are aware the Caracas-La Guaira highway closed in mid-January due to its main Viaduct being unsafe. Since that time the Venezuelan government has been working 24/7 to get a temporary alternate route built. It set the goal of completing the replacement route on February 26th, in time for the Carnaval holiday when many Venezuelans head for the beach.

Now, I am not exactly pointing out anything new, nor slandering anyone, if I say that not much of anything in Venezuela ever happens on time. Yet yesterday, February 26th, the government inaugerated the Viaduct 1 bypass and re-oponed the highway.



It might not be much to look at as it snakes its way along the steep ravines. But it does get the job done - and not a moment too soon. Job well done.
|