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Can Venezuela raise the price of oil?

Can Venezuela raise the price of oil?

Posted by Dubraswka Aguilar on November 27, 2014

In the meeting that will be held between representatives of the oil exporting countries, grouped in OPEC due to falling oil prices, analysts say the low recovery of oil is due to a drop in demand and an increase both in production and in the level of commercial nature reserves of major international powers.

This week, on the eve of a regular meeting of the Organization of Petroleum Exporting Countries (OPEC) on Thursday, the barrel falls to $ 75.

And Venezuela, which is in a difficult economic crisis, wants to change that trend, reaching an agreement among members of the organization to lower world oil production, so prices go up again.

According to the government of Nicolas Maduro, US $ 100 per barrel is the "fair price" for crude.

The logic of the Venezuelan government is that if world production is not cut and is still producing more than what is demanded, the price will continue to drop in 2015.

In times of Chávez

The last time oil prices had been so low was in 2008, amid the worst global financial crisis since the 1930s.

In 2009, the average price of OPEC basket went from US $ 94.45 to US $ 61.06.

At that time, the 12 OPEC countries reached a consensus to lower oil production, raise prices and balance the scales.

The price achieved by OPEC made attractive again the production of oil in places like the North Sea and Mexico.

In those days Venezuela was led by a charismatic and influential leader in the oil organization, the late Hugo Chavez, one of the proponents of that consensus.

Now, without Chávez, Venezuela will again pose the same question to OPEC. On Wednesday, the president of state Petroleos de Venezuela (PDVSA), Eulogio Del Pino, said that "hard times come, hard times from the viewpoint of the oil market. Let me say that we are prepared for the worst scenarios".

He added: "Our Foreign Minister Rafael Ramirez is making an extraordinary effort (...) virtually toured half the world in a week."

Indeed, the former president of PDVSA and now Foreign Minister Ramirez takes more than a month traveling through different oil countries looking for support for "defense of the price of our oil."

But Ramirez, of course, is not Chavez.

Can they?

Reports coming out of the pre-assembly of OPEC meeting on Thursday revealed that not all oil producing countries are interested in reducing their export.

And analysts polled by BBC agree to lower the price of oil is not just a matter of the will of a group of politicians.

"OPEC does not work as a poster where leaders decide what happens in the market," tells to the BBC Jeff Colgan, from Watson Institute at Brown University, in Boston, USA.

"In 2008 Chavez used there was a consensus before the economic crisis to say that OPEC could determine oil prices," he says.

"But we are now seeing what actually happens: oil, like anything else, works in a market where prices are determined by demand and supply."

The drop in prices is due mainly to two things: a fall on economic growth in China has reduced oil demand and the unexpected increase in production in the United States, Canada, Russia and Brazil, among others, has generated an oversupply.

While in 2008 there was a global crisis affecting all countries today is not clear that all live lean times.

And what is clear is that Venezuela, which has the least diversified economy of all oil countries, goes through a difficult time, with a fiscal deficit of 15% and an inflation rate of 60%, according to official figures.

"Perhaps Saudi Arabia, which is the largest oil producer, is the only country that has an influence to raise oil prices," says Colgan.

"And that intention seem hopeless," he concludes.

Another OPEC

On the other hand, OPEC is not what it used to be: in the 70s and 80s, the so-called "cartel" was able to dictate oil prices at will and paralyze the world with oil embargoes (two in 1973 and 1979).

At that time, when a barrel cost $ 20, OPEC controlled nearly 60% of world oil production.

Today, that figure is 40%.

And over time, the price of oil -and thus the number of producer-countries has been rising.

"The great historical trend is that OPEC countries did not respect their production quotas, but they raised bypassing consensus," tells to the BBC Rodolfo Guzmán, energy analyst at consultancy Arthur D. Little, based in Houston.

That quota system also what eradicated and now work with consensus reports that have helped to diversify the market, he notes.

He concludes that the main change the world market is the growth of production countries outside OPEC, especially the US, which has become one of the largest producers in the world.

"The world has changed new technologies of communication and production that have made OPEC remove its political nature and governed by the laws of the market", says to the BBC the professor of Petroleum of University Zulia, Rolín Iguarán.

He adds, "Even if they reach consensus on Thursday OPEC meeting to cut the production to raise prices, you have to see if it really works."

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