Venezuela is seeking an emergency OPEC meeting to figure out how the cartel can stem the collapse in oil prices, The Wall Street Journal is reporting.
According to people familiar with the matter, the Journal reports that Venezuela has contacted other members of OPEC — the 12-state oil cartel led by Saudi Arabia — to hold an emergency meeting “in coordination with Russia.”
Russia is not a member of OPEC — the Organisation of Petroleum Exporting Countries — but like OPEC’s members, Moscow is heavily dependent on oil revenues to meet its governmental budget needs.
Venezuela, for its part, has not been handling the collapse in oil prices well: It is teetering on the edge of hyperinflation, with at least one economist calculating the nation’s inflation rate at more than 770%. Venezuela’s last official inflation print showed prices rose 68% year-over-year in December 2014.
An emergency meeting of OPEC members, with or without Russia, is unlikely unless called by Saudi Arabia. The next OPEC meeting is scheduled for December 4th.
Earlier this month, we noted that analysts at Credit Suisse have argued Saudi Arabia is working to get oil prices low enough that marginal US shale producers halt investment and production. Credit Suisse said that it is, “very hard to know what price Saudi Arabia is targeting, but its behaviour is suggesting to us that this point has not yet been reached.”
Writing in The Telegraph earlier this month, Ambrose Evans-Pritchard cited work from analysts at Bank of America Merrill Lynch who said that OPEC is “effectively dissolved.”
The complication, of course, is that it’s unclear what the status of OPEC is given that it only meets twice a year.
What we do know is that this year Saudi Arabia has been producing oil at a record rate to defend its market share and bring in as much revenue as possible. Of course, the Saudi’s aren’t alone in this strategy, with Iraq also hitting record production numbers in June. As a group, OPEC has also been over its production target of 30 million barrels per day at times this year.
Most OPEC members, however, can’t balance their budgets with oil prices at current levels.
And so the cartel faces a Catch-22: It needs to produce oil to bring in whatever money it can but is also damaging itself by continuing to flood an already oversupplied market.
Against last year, the price of Brent crude oil, the international benchmark, is down about 60% from around $US117 a barrel to closer to $US47 on Thursday. Prices on Thursday alone, however, rose as much as 10%; earlier this week Brent crude was below $US43 a barrel, the lowest since the financial crisis.