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No need to bring down oil prices: Ramirez

NORVAL SCOTT

Tuesday, March 11, 2008

EDMONTON — A leading OPEC official has dismissed the need to bring down sky-high oil prices, saying the market is currently well supplied.

Speaking to reporters at the World Heavy Oil Congress in Edmonton Tuesday, Venezuelan Energy Minister Rafael Ramirez said that the current price spike – oil closed at $108.75 (U.S.) a barrel Tuesday – is the result of U.S. dollar weakness and commodity market speculation, as well as a lack of refinery capacity.

“It is not a matter of a shortage of oil. The market has plenty of oil,” said Mr. Ramirez, who is also the president of Venezuelan national oil company Petroleos de Venezuela SA.

He said that he now sees an $80 a barrel market floor for crude prices, with a drop below that level unlikely in the foreseeable future.

Mr. Ramirez also listed political tensions in the Middle East and potential problems in the U.S. economy as factors behind the record-setting price run. While the Organization of Petroleum Exporting Countries is watching the U.S. economy “very carefully” for signs of a breakdown in crude demand, the group has no plans to convene to discuss the state of the global market prior to its next scheduled meeting in September, he added.

Venezuela, along with Iran, is typically one of the most aggressive “price hawks” in OPEC, frequently making pronouncements that aren't in line with other members. Prior to OPEC's meeting last week, Venezuela called for a cut in the group's production, arguing that signs of slowing demand and growing inventories could drive down prices after the winter heating season.

Even if OPEC did feel a need to increase production, a lack of spare capacity among producing countries would make it unlikely, Mr. Ramirez said.

“Everybody is working to have more capacity, but now, it's not enough … to put more oil onto the market,” he said.

Given China's increasing demand for oil, Mr. Ramirez said he wasn't concerned about the prospect of growing supplies from Alberta's oil sands taking U.S. market share from Venezuela in the future.

“There is no competition, just different suppliers in the future that could balance the oil market,” he said. “The U.S. economy will need oil from Canada, Venezuela and Angola, and we have another market – China – that is rising fast.”

Venezuela has embraced controversy in recent years as it has redrawn the regulatory and taxation regime for foreign oil companies operating in the country, resulting in drawn-out legislative battles with major companies, including Exxon Mobil Corp.

However, Mr. Ramirez maintained that most companies operating in the country are now “inside the law, and we have stability. Now our relationships with companies are more transparent and more friendly.”

Asked about the extensive changes to the country's legal framework and royalty structures, Mr. Ramirez said: “We have the right to have a sovereign position over our resources. … I believe Alberta changed these things, too.”

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