The elegant colonial decor in the Caracas restaurant belies the economic hardship that dominates the country. Inside La Castellana, three local businessmen reminisce about how the country revelled in the profits of expensive oil. For almost a decade, from 1973 to 1981, when the price of oil jumped to $48 from $3 a barrel, Venezuela, like most of the
other 12 members of the Organization of Petroleum Exporting Countries (OPEC), enjoyed unprecedented wealth. Buoyed largely by the petrodollar, well-to-do Venezuelans vacationed in Florida and educated their children in expensive U.S. colleges. But in 1982 a global recession and competing interests among OPEC members led to a spectacular collapse in world oil prices to below $14 a barrel last year. And Venezuela, like other member nations of the 27-year-old cartel, plunged into a deep recession from which it has still not recovered. Said Gustavo Fernandes-Feo, owner of a Caracas construction firm: “We used to be able to buy as much as we wanted. Now we are struggling to survive.”
As OPEC’s 13 oil ministers gathered for their winter meeting in Vienna on Dec. 9, there was growing skepticism about whether the cartel can reassert
its influence over the world’s oil market. In 1980 OPEC members produced an average of 27.6 million barrels a day, or 55 per cent of the nonCommunist world’s oil supplies, but by 1986 their production had dwindled to 19.4 million barrels a day, or 41 per cent. The Persian Gulf war between Iran and Iraq—both OPEC members—has injected a serious element of instability within the cartel. At the same time, Iraq and other OPEC members, particularly the United Arab Emirates, have been eroding oil prices by flooding the world market to the point that OPEC production has reached an estimated 19.5 million barrels a day. That is about three million more than the quota the cartel imposed on itself last December in an attempt to keep prices up. As a result, the price of oil has remained relatively low, stabilizing recently around $24 a barrel.
But some OPEC members, desperate to increase their foreignexchange reserves, continue to overproduce. And that overproduction, some market analysts say, could push the price below $20 a barrel by March next year. While that would benefit Canadian oil consumers, it would be a blow to Canada’s oil industry, which is just beginning to recover from last year’s disastrous price slide. Indeed, industry analysts say that the price would have to recover to about $33 a barrel to make frontier and enhanced recovery economically viable.
Some OPEC ministers have said that they would use the Vienna meeting to seek stricter quotas for 1988 in an attempt to shore up the $24a-barrel price. An official with Venezuela’s ministry of energy and mines told Maclean's that OPEC officials informally discussed the possibility of a price increase at a meeting in Vienna last June. But he said that higher prices now appear unlikely because “the market forces cannot justify an increase without harming long-term oil demand.”
Since the collapse of oil prices in 1982 and again in early 1986, the once-powerful cartel has been beset by a serious erosion of discipline among its members. As a result, OPEC created a special production committee made up of the oil ministers from Nigeria, Indonesia and Venezuela to police members’ output. The ministerial group visited the heads of state in each member nation seek-
ing assurances on quota compliance.
Representatives at this week’s conference were expected to vote on a proposal to set up an independent auditor to monitor members’ output. Currently, OPEC countries submit their own production data, but the committee is proposing that an on-site auditor check production. Arturo Hernandez Grisanti, Venezuela’s energy minister, told Maclean's that the ministers’ committee so far has received a positive reaction from OPEC members to the proposal. “But,” he added, “in order to witness the results of this political will, we must wait until the conference.”
But there were signs of discord in the days leading up to the meeting. Iran, mired in a seven-year-old war with Iraq that has been largely funded by oil revenues, is demanding that the cartel raise the benchmark price to $26 a barrel. Hossein Kazempour Ardebili, Iran’s deputy minister of petroleum, said last month that an increase of $2 (U.S.) a barrel would compensate for the recent decline in the value of the U.S. dollar, the currency in which oil is priced on the international market.
On the other hand, moderate members such as Indonesia and Venezuela were recommending a $24-a-barrel price at least until the next meeting in six months. For its part, Saudi Arabia, OPEC’s largest oil producer, supports the $24 price but was expected to demand a one-million-barrel-a-day increase to 17.5 million barrels a day to siphon off some of its surplus.
For their part, non-OPEC oil suppliers were revising their production and exploration plans in anticipation of a stalemate. Many industry analysts said that they did not expect a price increase but were concerned about predictions of another price collapse if OPEC did not agree to stricter production quotas.
According to officials at the Canadian Petroleum Association in Calgary, most Canadian oil executives doubt that OPEC can control its renegade members. As a result, some firms are already planning cutbacks in their capital expenditures for the first quarter of 1988 based on a price of $20 to $21 a barrel. That, in turn, could adversely affect Alberta’s energy-based economy, which is already suffering at current oil prices. Last week only 189 of the 475 drilling rigs in place in the province were working—down from 211 the previous week and 345 on Nov. 3. That situation could quickly worsen if some OPEC countries, frustrated at the cartel’s inability to maintain prices, simply flood the world market with surplus oil.
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