Venezuela to Cut Oil Production

The recent drop in crude oil prices is not going too well with some of the countries. Venezuela, the fifth largest oil producer on Friday decided to cut down the production by about 50,000 barrels a day. Nigeria is expected to tread the same path.

The decision was taken in an attempt to stem down the falling crude oil prices, which have fallen by about 20% since mid July. President Hugo Chavez added that an appropriate was $50-$60 a barrel.

Oil Minister Rafael Ramirez has informed the Organisation of Petroleum Exporting Countries (OPEC) of Venezuela's decision to cut back, which will take effect from Sunday, his office said in a statement.

Venezuela will stop producing 50,000 barrels a day with the intention of mitigating the fall that oil prices have shown in the past weeks, the statement added.

Light sweet crude for November delivery rose 15 cents to settle at $62.91 a barrel on the New York Mercantile Exchange.

This announcement doesn't seem to have much significance,'' said Jose Toro Hardy, a Caracas-based oil analyst and former director of the state oil company. "Simply saying that they're going to lower production is nothing more than adjusting it to the reality.''

Analysts though believe the move will certainly not have any far reaching consequences in the market situation. The amount of crude Venezuela said it would remove from the market is equal to less than one-tenth of 1 percent of global demand. As it is Venezuela has been producing oil far below its quota for a long time now. This has been one of the worst kept secrets in the oil markets. It pumps around 2.5 million barrels a day instead of the 3.2 million barrels it reports to the cartel.

But U.S. oil traders said they had not heard of any of the Venezuelan cuts being implemented. Venezuela exports most of its crude to the U.S.

Industry analysts say they believe Venezuela has had problems maintaining oil production levels due to under-investment and insufficient expertise. OPEC decided to keep the limits of production to 28 million barrels per day. However analysts are convinced that the member countries will not refrain from cutting down on production if the prices drop below $55-$60 per barrel.

Nigeria’s oil minister, Edmund Daukoru, who is the OPEC president this year, recently said the price of oil was “very low.” Both countries, traditional price hawks within the Organization of the Petroleum Exporting Countries, said their cut was part of an informal deal agreed to at OPEC’s last meeting this month to pare output if prices declined.

The working of OPEC has been shrouded with controversies and claims by non member countries of the system being on the negative side of transparency. Some have even doubted their motives and aspirations. The latest decision might just add to their claims.