OPEC vis-a-vis $100 per barrel

Crude oil prices were up again last week, reaching the $100 level, which it had attained at the beginning of the year despite the gradual decline to the $86 mark. Why are oil prices up again?

As usual, several factors are responsible for the change in the direction of prices in this case. First, there is the forced shutting down of almost one million barrels daily in Nigerian production as a result of political violence in the Delta region. There is also the ongoing dispute between Exxon Mobil and the state-run Petroleos de Venezuela (PDVSA) over Exxon’s share at a heavy oil production project in the heavy oil-rich Orinoco province. The dispute also involved Exxon’s resort to international courts to seize no less than $12 billion of PDVSA’s assets outside Venezuela, as compensation for its losses resulting from the dispute and the unilateral termination of contract. Considering the ruling unfair, Caracas threatened to halt its oil exports of 1.5 million barrels daily to the United States.


Caracas, however, changed its mind and announced later that rather than halting its exports to the US, it would only stop its supplies to Exxon only which would account for the very limited supply of around 45,000 barrels daily. As talks are still ongoing between the two sides in an attempt to reach a conciliatory solution, Venezuela has stopped its exports neither to the US nor to Exxon.

The dispute between Exxon and Venezuela and the ensuing ruling that Exxon achieved from international courts constitute a dangerous precedent for oil-exporting nations with regards to the pressures that these companies can exert in the event of changes in the provisions of contracts signed in haste without substantial consideration as the case is today in a number of Arab oil countries. It is worth mentioning that during this period, Venezuela itself accepted a ruling by an arbitration commission over its dispute with Eni SpA and agreed to pay $700 million in compensation to the Italian energy company.

Dar Al Hayat