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Crude Economics
Desperate Venezuela Calls For Emergency OPEC Meeting

Venezuela’s economy was already in trouble last summer when oil prices were trading well over $100 per barrel, so you can only imagine how dire the straits the petrostate is now in with crude barely over $40. The WSJ reports:

According to [sources], Venezuela has been in touch with some members of the Organization of the Petroleum Exporting Countries, including Qatar’s oil minister and president of the OPEC conference, Mohammed al-Sada, to try again to find common ground to defend crude prices.

“Venezuela is genuinely concerned that if no action is taken prices are going to drop further,” an OPEC delegate said. “They also understand that OPEC alone cannot help much and there is a need for cooperation with producers outside OPEC, mainly Russia,” the delegate said.

Russia isn’t a member of OPEC, but it is without question a petrostate, which puts it in the same sinking boat as the rest of OPEC’s members. Caracas seems to think that bringing Moscow into the talks might help push OPEC away from its strategy of inaction, but Russia has no intention of cutting its own production. Meanwhile, OPEC’s biggest and most important member, Saudi Arabia, still isn’t likely to budge from this inactive position. Riyadh is the only one that can realistically throttle its output to a significant enough degree to push prices up, which makes its vote the only one that really matters at these meetings.

As the Economist explains, the Saudis may believe they can continue to endure the bearish market in the hopes of squeezing out non-OPEC producers (and Iran):

Though Saudi Arabia’s public spending has tripled in the past decade, needing $100 oil to balance the budget, it has foreign assets to sell and a debt ratio of just 1.6% of GDP. That gives it the leeway to avoid making a rushed decision.

Yes, prices are low, and yes, that’s pushing the world’s petrostates further into the red with each passing month as budget deficits begin to add up. But the biggest player in all of this is also the best prepared for it, which means the cries from OPEC’s smaller, more at-risk members seem likely to go unheeded.

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  • Pete

    Let’s hope the nitwits at our State Department doesn’t decide to bail out these petro states by somehow engineering an oil price increase like Kissinger did for Iran’s sake.

    • Albert8184

      Well, I guess all that depends on who’s bribing who to do what. Maybe the OPEC states are bribing our leaders to impede US domestic competition, or maybe we’re bribing the Saudis to mess with Iran. Or, maybe American politicians are just bowing down to Environmentalism until they better bribes from the frackers.

      • LarryD

        I’ve suspected for a while, that the Saudis real target is Iran, US shale oil is just a good excuse. Venezuela and Russia are just collateral damage from the Saudis perspective.

        🙂 from this perspective, it’s all Obama’s fault, for wimping out on Iran. With the US caving, the Saudis had to start playing real hardball.

        • Albert8184

          Indeed.

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