Oil prices rise as Chavez returns to power in Venezuela

Posted 8:05AM on Monday 15th April 2002 ( 23 years ago )

LONDON - Oil prices rose Monday after a tumultuous weekend in which Venezuelan President Hugo Chavez returned to power two days after being deposed in an attempted coup. The markets saw Chavez's return as a sign Venezuela that would continue its policy of maintaining high oil prices by restricting production. The reinstated Chavez made conciliatory moves toward the state oil monopoly, however, raising hopes of an end to strikes and disruptions that have choked off supplies from the world's fourth-largest oil exporter. In early trading in London, May contracts for Brent crude from the North Sea rose 23 cents to $24.52 per barrel, while June contracts for Brent were up 57 cents to $23.73. In pre-market trading in Nw York, May contracts for light sweet U.S. crude were up 47 cents at $23.94 a barrel. "The market is a bit paranoid because it sees Venezuela as a pivotal country," said Leo Drollas, chief economist at the Center for Global Energy Studies in London. Analysts predicted the trend over the next few months would be for higher prices. Iraq's 30-day oil embargo, announced last week, and instability in the Middle East have fueled fears of shortages. On Monday Iranian President Mohammad Khatami reiterated the country's call for Muslim oil producers to halt supplies for a month in protest against Israel's actions in the West Bank. Iran is OPEC's second-largest producer, but other major producers such as Saudi Arabia and Kuwait have said they are opposed to using oil as a diplomatic weapon. Oil analysts have said there is so much idle production capacity among producers that cutoffs by only a few nations would not have a significant effect on world supplies. However, Drollas said, "the underlying fundamentals are getting a bit tighter" -- a trend that could be accentuated if Venezuela returns to restricted production. Venezuela has been a consistent overproducer, favoring volume over price, and regularly exceeding its OPEC production quotas, until Chavez brought it back into line. After Chavez came to power in 1998, Venezuela became a stalwart OPEC member, adhering to the group's policy of keeping prices up by limiting production. His policies brought him into conflict with managers at Petroleos de Venezuela SA, the state oil monopoly. The 1-million-member Venezuelan Workers Confederation and the business association Fedecamaras called a general strike last week to support Petroleos executives protesting Chavez's appointment of a hand-picked board of directors. The strife ended in Chavez's resignation under military pressure on Friday, after a massive opposition demonstration ended in a bloodbath in which 16 people were reported killed. The circumstances of the deaths remain unclear. On Sunday, the reinstated Chavez said he had accepted the resignation of the new company president and board. Petroleos said shipments had been resumed and production, refining and exports would return to normal this week. Before the disruptions, Venezuela was producing some 2.5 million barrels a day.

http://accesswdun.com/article/2002/4/196016