Venezuela Seeks OPEC Cutback

The global oil market is “well-supplied” and a reduction in OPEC output of between 500,000 and 1 million barrels a day is appropriate, Venezuelan Oil Minister Rafael Ramirez said.

Ramirez, speaking in Caracas ahead of a meeting of the 11-member group Thursday, diverged from other oil producers by backing an output cut. Government officials from the United Arab Emirates, Algeria and Iran have signaled that no cut is likely.

Venezuelan officials have held talks with other members of the Organization of the Petroleum Exporting Countries about a possible reduction, Ramirez said in Caracas on Monday. He said near-record oil prices were being caused by geopolitical tensions rather than the fundamentals of supply, demand and inventories.

“Oil inventories are at historical highs,” Ramirez said. “Gasoline inventories are recovering strongly. Given these factors, Venezuela considers it advisable to cut output by between 500,000 and 1 million barrels a day.” He spoke after meeting with OPEC’s acting secretary general, Mohammed Barkindo of Nigeria. Venezuela is OPEC’s third-largest producer.

Venezuela, under President Hugo Chavez, has often favored more aggressive attempts by the producer group to limit output and boost prices. The OPEC governor from Iran, also usually on the side of cutting production, said this month that he didn’t expect quotas to be lowered at the Caracas meeting.

OPEC has kept the production quota of 28 million barrels a day unchanged for 10 months after five increases in the year before that.

Still, OPEC’s stance has failed to check the rise in prices. Crude oil touched a record $75.35 a barrel last month in New York. Crude for July delivery ended last week at $71.37 a barrel in trading on the New York Mercantile Exchange.

“There’s little chance that the Venezuelan proposal will be accepted,” said Juan Carlos Sosa, president of Grupo Petroleo, a Caracas-based energy consultant. “The other members of OPEC are clear that there should be no reduction,” he said Monday.

Iran’s OPEC governor, Hossein Kazempour-Ardebili, said in Norway on May 19 that a quota cut was unlikely: “Fundamentals are calling for a cut in production, but the expectation is to keep the current level of production.” Iran is the second-biggest producer in OPEC.

The United Arab Emirates oil minister, Mohammed Hamli, said Monday that “OPEC wants to reassure the markets that it will keep on pumping what the market needs in order to have fair prices,” according to the state-owned news agency WAM. The UAE is the cartel’s No. 4 producer.

OPEC currently has a capacity surplus of about 2 million barrels a day, Hamli said. He said the suitable price for producers and consumers could range between $50 and $60 a barrel for OPEC crude, which is slightly cheaper than the New York benchmark.

“The meeting in Caracas won’t review the quotas,” Algerian Energy Minister Chakib Khelil said Sunday in Algiers, according to the state-run newspaper El Moudjahid. “It will be devoted to studying the evolution of the market.”

Oil was pushed to all-time highs this year largely on concerns that the dispute over Iran’s nuclear research could lead to a conflict that disrupts supplies. Violence that has curtailed Nigerian output has also lifted prices. Oil futures prices are 40% higher than a year ago.

“Prices are very good right now, and to cut output would send a very negative signal to the energy-consuming countries,” Sosa said.

OPEC produced an average of 30.1 million barrels a day in April, 290,000 more than in March, according to Bloomberg data.