Market watch: Energy futures prices weaken as Chávez claims gains

Jan. 24, 2003
Energy futures prices continued to decline Thursday with the perception among New York and London traders that Venezuelan President Hugo Chávez may be winning his proclaimed "petroleum war".

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 24 -- Energy futures prices continued to decline Thursday with the perception among New York and London traders that Venezuelan President Hugo Chávez may be winning his proclaimed "petroleum war" against the national oil company, Petroleos de Venezuela SA (PDVSA).

Venezuelan government reports that 75% of PDVSA's hourly-paid employees had returned to work seemed to signal an end to the general strike aimed at ousting Chávez and encouraged traders to liquidate long positions in that futures market, said London brokers.

However, financial analysts at Fitch Ratings Ltd., New York, reiterated in a telephone conference call early Thursday that "no solution is yet in sight" for the 54-day strike that has slashed Venezuela's current oil production to maybe 900,000 b/d from 3 million b/d previously and curtailed its exports to an average of 500,000 b/d in December, down from 2 million b/d prior to the strike.

Cash flow impeded
"Even the limited crude shipments delivered since the end of November have not resulted in cash inflows to the company, as strike-related actions precluded the timely issuance of corresponding invoices totaling an estimated $600 million," Fitch analyst Alejandro Bertuol reported Thursday.

Although PDVSA has sufficient liquidity to meet near-term financial obligations, its priorities "may be revised should the company's cash-generation ability remain impaired for an extended period," said Bertuol. Moreover, the government's "inclination to interfere with the company's finances increases as the sovereign's credit ratings deteriorate," he said.

Fitch and other analysts have projected that, even with the full cooperation of PDVSA's professional staff, it would likely take 60 days to restore PDVSA to full production.

More workers fired
Chávez told supporters at a massive rally Thursday in Caracas that he has now fired 3,000 PDVSA managers and technicians for participation in the strike, up from 2,000 previously.

A proposal by Venezuela's oil ministry to split PDVSA into two separate operations would eliminate 9,000 management and technical positions in Caracas, Fitch analysts said.

Still, Chávez claimed PDVSA's oil production now averages "way beyond 1 million b/d" and should hit 2 million b/d "by the end of January . . . or, at latest, by the first week of February." He said, "The recovery has been much more rapid than we expected, thanks to the heroic job by oil workers, patriotic technicians, . . . brigades of volunteers, and many military officials who joined the workers to recover our oil industry."

Meanwhile, other sources reported Venezuelan officials have banned aircraft from flying over Lake Maracaibo where oil spills recently were photographed by Venezuelan television. Displaced PDVSA personnel claimed the spills resulted when soldiers and unskilled workers attempted to restore oil production from area wells; administration officials blamed "remote-control sabotage" by disaffected PDVSA employees.

Also in Caracas, Alvaro Silva Calderon, current secretary general of the Organization of Petroleum Exporting Countries and former Venezuelan energy minister under Chávez, told the state news agency that the other nine active OPEC members have "sufficient shut-in capacity" to make up any shortfalls of Venezuelan crude on world markets. However, he acknowledged, Venezuela "fundamentally supplies the US, and there the effects are going to be felt. To attend to those regions is a little more complicated."

Fitch analysts noted that OPEC's proposed production increase is slated to begin Feb. 1, with Saudi Arabia slated for the biggest addition. By supertanker, they said, "Saudi Arabia is 40 days from the US," vs. about a week's travel for smaller tankers from Venezuela to US Gulf Coast ports. Moreover, analysts said most additional OPEC production consists of light to medium-weight crudes, rather than the cheaper, heavy Venezuelan crude that several US refineries were specially designed to handle.

Most of those refiners have secured alternative supplies of crude, but at higher costs that they likely will not be able to pass through "on a regular basis," Fitch analysts said.

In the interim, they said, exports of Venezuelan oil and petroleum products are restricted primarily to a few government-owned tankers that are supplying PDVSA's wholly owned Citgo Petroleum Corp. subsidiary and its joint venture Lyondell-Citgo Refining LP.

Third-party tankers still are not loading at Venezuelan ports because of insurance concerns.

Oil prices
The March contract for benchmark US light, sweet crudes dropped 60¢ to $32.25/bbl Thursday on the New York Mercantile Exchange, while the April position lost 40¢ to $31.39/bbl. Heating oil for February delivery gained 0.34¢ to 91.53¢/gal. Unleaded gasoline for the same month slipped by 0.12¢ to 89.81¢/gal.

The February natural gas contract fell 21.5¢ to $5.46/Mcf Thursday, wiping out most of Wednesday's gain on NYMEX.

Analysts at Enerfax Daily reported traders took quick profits "in a classic 'buy the rumor and sell the fact' scenario" after the US Energy Information Administration reported Thursday a huge withdrawal of 210 bcf of gas from US underground storage during the week ended Jan. 17.

US gas storage now stands at 1.99 tcf, or 537 bcf below year-ago levels and down 76 bcf from the 5-year average. Because of recently higher prices for natural gas, US ammonia production dropped 17% in December from 2001 levels, reducing gas demand by 250 MMcfd, or 0.5% on an annualized basis, reported Robert S. Morris, analyst at Salomon Smith Barney Inc., New York.

In London, the March contract for North Sea Brent crude fell 62¢ to $29.72/bbl on the International Petroleum Exchange. The February natural gas contract continued to decline, down 8.1¢ to the equivalent of $2.94/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes lost 71¢ Thursday to $30.18/bbl.

Contact Sam Fletcher at [email protected]