Oil Resurges on Venezuela’s Call for Cuts

Oil prices roared back from a slide to 1988 lows Wednesday after Venezuela sought an agreement among worldwide producers to cut output.

An industry report of an unexpected drop in U.S. oil stocks also helped lift prices. The American Petroleum Institute’s weekly report late Tuesday showed drawdowns of 1.05 million barrels in gasoline stocks and 1.33 million barrels in crude oil stocks last week. Many analysts had predicted increases.

Crude oil shot up $1.13 to $14.34 a barrel on the New York Mercantile Exchange, a day after it dropped below $13, the lowest since November 1988.

The plunge had cut oil prices, when adjusted for inflation, to levels not seen since 1960, when the Organization of Petroleum Exporting Countries was formed.

OPEC member Venezuela is seeking agreement between OPEC and non-OPEC oil producers to withdraw up to 2 million barrels a day from the world market to boost prices, the head of Venezuela’s state oil company said Tuesday.

Luis Giusti, president of Petroleos de Venezuela, said Venezuela had contacted oil producers to discuss the proposal.

Venezuela has dismissed OPEC’s quota system as outdated and served notice that it wants to trim its oil output as part of a concerted effort involving global producers.

However, it appeared that Venezuela would only cut from its current production level, which is already well above its long-ignored OPEC quota.

But its bid to orchestrate an output cut shared among OPEC members and other oil producers has a long way to go, OPEC insiders said.

Norway, a non-OPEC producer, said Wednesday it had not had any contact from the cartel. But Oman recently said it would be prepared to cut if OPEC members did the same.

Oil traders were skeptical of Venezuela’s move and many expected prices to stay weak.

Venezuela’s call for an OPEC/non-OPEC agreement is a “red herring,” said Nigel Saperia, managing director of oil trading at Bankers Trust International in London.

Saperia said oil prices had not yet hit their lowest level for this year.

Analysts have predicted that oil prices could slump below $10 a barrel because of the oversupply.

OPEC’s linchpin producer, Saudi Arabia, is locked in a dispute with Venezuela and has hinted that it will not support holding emergency talks while others cheat on their quotas--a remark aimed mainly at chief violator Venezuela.