Venezuela wants an emer­gency OPEC meet­ing


Venezuela is seek­ing an emer­gency OPEC meet­ing to fig­ure out how the car­tel can stem the col­lapse in oil prices.

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 Or­ga­ni­za­tion 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 $117 a bar­rel to closer to $47 on Thurs­day. Prices on Thurs­day alone, how­ever, rose as much as 10%; ear­lier this week Brent crude was be­low $43 a bar­rel, the low­est since the fi­nan­cial cri­sis.

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