Venezuela rethinks cheap gasoline

Mar 17, 2009 01:00 AM

Venezuela, Latin America's biggest oil producer, is considering hiking its extraordinarily cheap domestic gasoline price as it copes with the global crisis. President Hugo Chavez said that his government is considering the move, after having kept prices at the pump frozen for the past 13 years.
"It's one of the issues we're looking at, because people are consuming a lot in these luxury cars, and it's not fair that the rich pay almost nothing for gasoline here," the leader said.

Currently, a litre of gasoline in Venezuela costs about four cents (16 cents a gallon) -- cheaper even than a litre of milk, which sells for around $ 2.
Analysts see the development as linked more to falling oil export revenues in the depressed world market than socialist goals. But even then, "a slight increase in gasoline prices alone won't solve Venezuela's fiscal problem, because it would have to be increased to international levels, which means five or 10 times more than the current level, and that's not on the table," said economist Jose Guerra.

Venezuela is grappling with a precipitous decline in oil values, from an average of nearly $ 87 a barrel in 2008 -- with a peak of $ 130 -- to just $ 36 a barrel today. Some 90 % of the country's export income comes from oil, and the country planned for 60 dollars a barrel in its 2009 budget.
Over the last decade, dirt-cheap fuel has spurred an explosion in car ownership in Venezuela's biggest cities. In Caracas, traffic jams frequently trap drivers for up to three hours, and finding a place to park -- even in parking lots -- is nearly impossible.

Guerra said the government's subsidizing of gasoline amounted to an estimated $ 6 bn a year. It costs the state PdVSA oil company 14 cents to produce a litre (0.26 gallons) of gasoline -- nearly three times the price consumers pay.
But resistance to price hikes runs deep. Many in Venezuela have long considered the country's oil bounty as belonging to the people and that they should directly benefit. Two decades ago, an attempt to raise pump prices was seen as the trigger for intense riots in the capital that left hundreds dead. The 1989 uprising known as "Caracazo" is seared in the minds for Venezuelans facing with the prospect of a price hike.

Chavez himself tried to nudge prices higher in 2007, and even rolled out a publicity campaign, but in the end decided to abandon the push. Earlier this month, Energy and Oil Minister Rafael Ramirez vowed to slash production costs at PdVSA by 40 %, in a bid to make up for the low prices. And he urged the OPEC oil cartel to drain 1.0-1.5 mm barrels daily from the market to prop up value.
The 12-nation Organization of the Petroleum Exporting Countries needs to cut back production in order to force prices up to $ 70 a barrel, Ramirez said before the meeting.

"There has to be an equilibrium between the price and the necessary investments" for crude production, he said.
OPEC at its meeting decided against further cuts and froze its output at current levels, urging itsmembers to comply with last year's deep cuts.

Source / AFP
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