By Noora Ahmad
Islamic Post Staff Writer
“Venezuela has enough savings to face any crisis,” said Venezuelan President Hugo Chavez, according to the Venezuelan daily, El Universal. In an effort to dispel global misconceptions regarding the Venezuelan economy, President Hugo Chavez has recently insisted, repeatedly, in the annual address to his national assembly, on January 13, that the country is not in economic crisis, even with last year’s landslide in oil prices.
Mark Weisbrot, co-director and economist at the Center for Economic Policy Research, in Washington, D.C. (CEPR), concurs: “It is clear that Venezuela can be expected to run current account surpluses for the foreseeable future, even at oil prices far below the levels that are currently forecasted, by any experts, in the field,” wrote Mr. Weisbrot late last year, in a report entitled “Oil Prices and Venezuela’s Economy.” “However, even if the economy were to somehow fall into a current account deficit, the government has $40 billion in reserves, at the Central Bank and another $37 billion, in other hard currency assets. These reserves amount to 23 percent of GDP, thus providing an enormous cushion for any unanticipated events.”
And unanticipated it has been. Before oil prices began to climb earlier this month, speculations ran rampant over the causes and effects of the skyrocket in oil prices and their subsequent plummet, which occurred at the same rapid pace. In answer to the current low oil prices, which have been perceived as the effect, of a decrease, in global demand, Venezuela is tempering its output, like other OPEC countries, with a cut of 189,000 barrels per day.
Yet, according to a 60 Minutes segment which aired January 8, a decrease in the demand for oil may not be what caused gas prices to fall. CBS Correspondent Steve Kroft reported during the segment that unheeded experts are saying rapid rise and fall in prices “was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street” than with how much gas consumers were, or were not, putting into their sports utility vehicles.
Steve Kroft claimed: “A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year’s run-up in oil prices. And Michael Masters [who testified before the Committee on Homeland Security and Governmental Affairs of the United States Senate last April on the same matter] says the U.S. Department of Energy’s own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.”
With regards to speculation Mr. Kroft asserts: “Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges.”
He also claimed there was no way of knowing who did the circumvention, as the deals were done secretly. These secret deals could, as oil prices swing back up, render production cuts, a potentially perilous move for producers and consumers alike, according to Michael T. Klare, author of Rising Powers, Shrinking Planet: The New Geopolitics of Oil. “As long as prices remain low,” said Mr. Klare, “Oil companies have no incentive to invest in costly new production ventures, which means no new capacity is being added to global inventories, while available capacity continues to be drained. Simply put, what this means is that, when demand begins to surge again, global output is likely to prove inadequate,” driving the price back up.
In addition, the price may not come back down so easily next time as “most ‘easy oil’ reservoirs have now been exhausted,” according to Klare, “Which means that virtually all remaining global reserves are going to be of the ‘tough oil’ variety. These require extraction technology far too costly to be profitable, at a moment when the per barrel price remains under $50,” concluded Michael Klare. This signifies that if OPEC countries like Venezuela do not continue to explore new oil drilling avenues, the oil shortage could become a very real crisis.
Even given this assessment, Venezuela is going ahead with its charitable CITGO heating oil program in the United States, despite reports to the contrary which, like those commenting on the country’s prospective economic losses, claimed the country could no longer afford such excesses. CITGO CEO Alejandro Granado and Citizens Energy Chairman, Joseph P. Kennedy II, gave a press conference earlier this month confirming that income-eligible households may apply to receive up to 100 free gallons of heating oil. Mr. Kennedy pointed out that he is “personally aware of President Chavez’s genuine concern for the most vulnerable, regardless of where they may live.”
Filed under: Business/Economy, December Volume 1 - 2008, International, World | Tags: oil
By Khalida Khaleel
Islamic Post Staff Writer
As oil prices plummet, and gloomy predictions prevail, some oil-producing countries are feeling the impact more than others after the rapid 3 month decrease in the price per barrel from $147 to $55 (at press time); while in some areas, the oil industry is being bailed out with tax dollars.
In one such instance, the Russian government pledged $50 billion to help refinance the foreign debt of oil and gas companies in the country in an attempt to curtail the effects of the global economic crisis upon its oil industry.
For its part, OPEC has decided to cut production slightly to maintain profits in the face of the apparent decrease in oil demand. It had been said that consumers worldwide are simply spending and traveling less, causing gas prices to plummet. Whether or not it is fair to the consumer, the intergovernmental oil monopoly, OPEC, “ Wants You to Pay More for Gas,” as was bluntly described in a Time Magazine headline from October .
As regards Venezuela, analysts have raised questions about the likelihood of the nation surviving the squeeze, which began, according to industry definitions, the moment the price of oil dropped below the $70 per barrel mark. Bloomberg’s headline predicted: “Chavez Ambitions in Venezuela May Fade With Oil Price;” although the Venezuelan president may yet disagree (See VENEZUELAN ECONOMY, C4, Col. 5)
But the outlook is not predicted to be gloomy for everyone.
Like their Russian counterparts, major oil companies in Britain and the United States are also being given a helping hand against financial disaster, in this case, by the Iraqi Ministry of Oil. In closed-door talks held in London, 34 petrol giants, including Shell, British Petroleum (BP), Exxon Mobil and Chevron, met with Hussain al-Shahristani, Iraq’s Minister for Oil, to bid on contracts to help extract 115 billion barrel of proven oil. The bid is a landmark for the war-torn country, whose oil resources have not been sold as such since 2003.
According to the UK Telegraph, “Iraq was at the forefront of world-wide oil production until the Ba’athist regime nationalized the industry in the 1970s. Although Saddam Hussein made deals with French, Russian and Chinese oil companies in the 1990s, United Nations sanctions barred the country’s re-emergence as a leading source of energy supplies.”
The daily news outlet also quoted aides at the Park Lane meeting in London as saying, “the location was deliberately chosen to demonstrate that Iraq had shed its old pre-occupations about foreign powers dominating the industry, which generates ninety per cent of its annual income.”
In an article entitled, “Iraqis Have Money but Lack Know-How in Spending It,” the Associated Press claims “Iraq’s government has an unusual money problem as much of the world grapples with a credit crunch — it can’t spend its oil riches fast enough.”
This conclusion was reached as the result of a U.S. Government Accountability Office report which estimated Iraq could arrive at a $79 billion budget surplus by the end of the year considering, “oil revenues and unspent funds from previous budgets.”
Filed under: July Volume I- 2008, National, Politics | Tags: news, oil, Politics
Deborah Tate from VOA News reported that Peter Robertson, vice chairman of the board of Chevron Corporation, criticized proposed legislation that would revoke tax breaks to major oil companies. “Punitive measures that will weaken us in the face of international competition are the wrong solution at this critical point in our history.”
$36 billion in oil profits have been made in only the first three months of this year.
Top US oil executives appeared before Congress recently to answer a claim, by Democrats, like Committee Chairman Patrick Leahy of Vermont and Senator Herb Kohl of Wisconsin, as to why there have been profits of $36 billion in only the first three months of this year.
Combined, the major oil companies: Exxon Mobil Corp., Royal Dutch Shell, BP PLC, Chevron Corp., and ConocoPhillips, made $123 billion last year alone, and are already slated to make billions more this year. This is at a time when US motorists are paying record prices at the pump – now averaging $3.29 a gallon amid talk of $4 a gallon this summer and one out of 8 Americans are on food stamps.
“It just doesn’t seem fair,” said Kohl.
Stephen Simon, senior vice president of Exxon Mobil, answered that their firms’ profits are invested back into the company and claimed that the oil conglomerate’s huge profits are in line with other industries.
The oil company officials also blamed soaring crude prices on rising global demand, urging lawmakers to end restrictions on exploration and production of oil in the United States by lowering the taxes involved.
Deborah Tate, from VOA News, reported that Peter Robertson, vice chairman of the board of Chevron Corporation, criticized proposed legislation that would revoke tax breaks to major oil companies.
“Punitive measures that will weaken us in the face of international competition are the wrong solution at this critical point in our history,” he said. “Such measures will only increase our dependence on foreign supplies of energy while resources at home are untapped.”
The oil company officials took issue with another bill, passed by the House in May, but awaiting Senate action, that would allow the United States to sue the Organization of Petroleum Exporting Countries (OPEC) on antitrust and price fixing grounds.
Critics say the measure could prompt a backlash from oil producers, and President Bush has vowed to veto the measure.
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