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Caracas revives lobby for Opec/non-Opec meeting

14 Jul 2017, 9.10 pm GMT

Caracas revives lobby for Opec/non-Opec meeting

Caracas, 14 July (Argus) — Venezuela is quietly lobbying key Opec and non-Opec oil producers to hold a new meeting as soon as possible to discuss how a current pact to coordinate output cuts can be strengthened, presidential palace and energy ministry officials said.

If Venezuela's low-key diplomatic outreach to oil producers such as Russia, Iran and Saudi Arabia concludes there is support, Venezuelan president Nicolas Maduro would seek a joint public statement calling for an "extraordinary meeting" as soon as possible, the officials added.

The Maduro government's tentative agenda for such a meeting would address what Caracas sees as the need for "more production discipline" by Opec producers including Libya, Nigeria, Iran and Iraq in a bid to strengthen oil prices.

Caracas also hopes to expand the current coordinated output reduction agreement by inviting more non-Opec producers to join the agreement, the officials said.

The government's attempt to marshal support for another meeting reflects growing worries in Caracas that state-owned PdV could default within five months if oil prices remain stuck below $50/bl in second half 2017. Nearly all of Venezuela's hard currency revenue comes from oil exports.

Venezuela's scheduled bond debt maturities from August-December total over $4.9bn, including over $3.267bn of PdV bond debt.

Scheduled PdV and sovereign bond maturities in October and November alone total more than $3.63bn, including $2.97bn in PdV debt. The latter features $2.24bn due within a seven-day window from 27 October to 2 November.

The central bank's foreign currency reserves including cash and gold holdings currently total around $10bn.

Maduro and PdV chief executive Eulogio Del Pino optimistically predicted in January 2017 that the Opec/non-Opec agreement to cut output for six months would raise oil prices to over $60/bl by the second half of this year. At the end of May, Opec and non-Opec producers agreed to extend their 1.72mn b/d of production cuts for a further nine months from July, beyond the original six-month agreement. Prices have failed to respond amid rising production from Nigeria and Libya, which are exempt from the deal to cut output.

Venezuela's year-to-date 2017 average export price as of 14 July was $43.53/bl, only $8.38/bl higher than its 2016 full-year average price of $35.15/bl and $1.12/bl below the 2015 price of $44.65/bl, energy ministry data shows.

Venezuela's current year-to-date average price remains about $45/bl below the average 2014 export price of over $88/bl.

At the same time, Opec's July monthly market report shows that Venezuela's production contracted significantly in first half 2017.

Opec reported based on secondary sources that Venezuela's crude output in June averaged 1.938mn b/d compared with 2.159mn b/d at end-2016, a decline of 221,000 b/d or 11.4pc during the six-month period.

PdV said yesterday that the Opec secondary sourced output number for June represents 136pc compliance with its share of production cuts.

Venezuelan official crude output figures reported by the energy ministry to Opec indicate a 217,000 b/d decline, from 2.373mn b/d at end-2016 to 2.156mn b/d in June 2017.

On an annualized basis, the official 221,000 b/d output decline represents about $3.5bn in lost oil export revenues based on PdV's year-to-date average export price of $43.53/bl as of 14 July.

Venezuela's default potential has also spiked amid an increasingly unstable political outlook as the Maduro government insists on establishing a constituent assembly that critics including long-serving attorney general Luis Ortega Diaz decry as illegal and unconstitutional.

The constituent assembly will be elected on 30 July in closed elections rigged to favor the ruling United Socialist Party (PSUV), critics argue. The government's political foes have scheduled a plebiscite on 16 July in an effort to demonstrate there is overwhelming opposition to the assembly.

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