CARACAS (Reuters) - Venezuela on Wednesday proposed that OPEC set an oil price band of $80 to $120 a barrel, Energy Minister Rafael Ramirez told Reuters, bidding to restore a policy the cartel tried 12 years ago in a failed attempt to control prices in a tight range by adjusting supply.
The Organization of the Petroleum Exporting Countries in 2000 adopted a $22 to $28 price band, requiring its members to cut or raise output in an effort to keep prices in that range for an OPEC basket of crudes. The policy quickly proved unworkable, however, and increasing demand from China pushed prices irreversibly through $30 in 2004.
“We need to restore the band system,” Ramirez told Reuters late Tuesday. “It could be between $80 and $120 right now, that would be sufficiently wide to allow flexibility.”
A Middle East OPEC official immediately dismissed the idea as a non-starter.
“Having a band was never successful in the past and won’t be successful now,” the official said. “Its OK to have a band when the prices are going up, but what happens when the price goes down? You’ll have to keep cutting production? This is out of the question.”
Iran, an ally of Venezuela in OPEC, did not dismiss the idea out of hand, pointing out that the $100 middle of the band proposed by Caracas is where many producers including Saudi Arabia want prices.
“Venezuela is not the only country to believe the price should be around $100. The question is how do we protect this level. This issue should be discussed if it is proposed officially to OPEC,” said Iran’s OPEC governor, Mohammad Ali Khatibi.
An official at OPEC declined comment.
Venezuela’s Ramirez, who is also head of state oil company PDVSA, said a fall in global crude prices to $90 a barrel was a threat to core oil projects around the world.
“Right now it’s a case of holding on to see if the prices are going down for circumstantial reasons, but if the situation continues, we are entering a risk zone. Anyone who enters into play like this in the oil market is shooting himself in the foot,” he added.
Saudi Arabia, which said earlier this year it was happy with $100 a barrel, has shown no sign of cutting production to support prices that sank last week below $90 for global benchmark Brent for the first time in 18 months. Brent traded just over $93 on Wednesday.
Venezuela relies on oil for more than 90 percent of export revenue and has been heavily critical of the Saudis for increasing production to help suppress prices and support global economic growth.
President Hugo Chavez’s socialist government has been using oil revenues to spend big on welfare projects ahead of an October 7 election, but economists warn that the price fall will hit its coffers hard.
Writing by Andrew Cawthorne, editing Richard Mably and John Picinich