Opec losing the Latin beat

Don’t be surprised to find an idle Spanish language interpreter or two along Vienna’s Helferstorferstrasse this week, as Latin America’s sole Opec members are preoccupied with their rocky home fronts. Venezuela and Ecuador appear content to let Opec´s heavyweights plus Russia hammer out the terms of the likely extension of a deal to restrict output. Their effective withdrawal means the region has less of a voice at the negotiating table, matching their loss of relevance in the market.The disengagement is especially conspicuous in Venezuela, one of Opec´s founding members. Over the weekend president Nicolas Maduro named general Manuel Quevedo to head the energy ministry and state-owned oil company PdV, pushing out industry veterans Eulogio Del Pino and Nelson Martinez. One might not blame them for looking over their shoulder on the way out. The controversial appointment coincides with a spiraling decline in production and a tidal wave of industry arrests, crowned by a half dozen top executives of PdV’s US refining unit Citgo. Quevedo has a mandate to deepen the purge and “restructure” the industry.

By all accounts the head of the government´s socialist housing program is unfamiliar with the oil business. Quevedo’s inaugural Tweet as the new oil boss called for transforming PdV into a “Sacred Temple of the People.” ‘Hallelujah,’ Maduro must have been thinking as he faces shrinking coffers and a possible presidential election next year.

A day after Quevedo´s appointment, the Venezuelan energy ministry could not say whether he would attend the Opec meeting. He might well turn up, but there are undoubtedly more pressing calls on his time at home, not least a looming cascade of debt defaults and US sanctions to fend off.

Over in Quito, it´s hard to discern the flip book of bosses at the oil ministry and state-owned oil companies PetroEcuador and PetroAmazonas. The new, more pragmatic government of president Lenin Moreno, which unexpectedly parted ways with former president Rafael Correa, has signaled that Ecuador will press on with developing its ITT heavy crude complex to earn desperately needed revenue. But it tossed out an earlier plan to ask Opec for an exemption from its quota. Better perhaps to just carry on quietly, and take up a bit of the growing void that Ecuador´s old Venezuelan ally is leaving behind in the market. Like Venezuela, Ecuador has plenty of oil-backed debt left to pay, mainly to China. Then there is Ecuador’s debt to oil services companies like Schlumberger that are actually getting the oil out of the ground.

All of this leaves Latin America´s non-Opec producers to bulk up the Spanish-speaking contingent in Vienna. But Opec´s invitations were roundly rebuffed. Sub-salt giant Brazil appears to have flirted with the Saudis, but ultimately will stay away. So will Colombia. The Mexicans could make a showing as they have in the past, but like Brazil and Colombia they have no interest in sending even the faintest hint to foreign oil companies that future production could be subject to Opec restraints.

The retreat of Latin America´s two struggling Opec producers, and the longstanding reluctance of their non-Opec neighbors to participate in efforts to coordinate production, put the region on the margins of the debate over efforts to rebalance supply and demand.

They might not care so long as oil prices continue to creep up. For Opec’s Latin American duo, this could be called free riding if it weren’t for the narrow slice of their exports that actually fetch market prices these days. But of course, the higher oil prices go, the fewer barrels they need to deliver to satisfy oil-backed debt.

As for the interpreters, they may find more work these days in Caracas and Quito, where growing numbers of lawyers, bankers and bondholders have come knocking.

Leave a Reply

Your email address will not be published. Required fields are marked *

*