- The Washington Times - Thursday, February 12, 2009

MIAMI

Venezuela has made good on its promise to reduce oil exports, canceling several shipments to the United States in order to comply with OPEC production cuts and bolster its own fortunes by helping raise the price of oil worldwide.

Four shipments bound for the U.S. refiner NuStar LP were canceled totaling 1.2 million barrels, according to company officials. Two shipments were scheduled for this month, with the other two deliveries set for March.

While NuStar contends the company would not be adversely affected by Venezuela’s decision to cut its exports, the company joins a growing list of U.S. energy firms not receiving Venezuelan crude.

As part of its own efforts to stem losses caused by falling oil prices, the Venezuelan state-owned energy company PDVSA last month said it was discontinuing shipments to two Southern U.S. refineries, Sweeney and Chalmette, in Texas and Louisiana.

The Venezuelan economy has been particularly troubled by the fall of oil prices from a high last year of around $150 a barrel.

The steep drop-off in the price of oil - a barrel today costs almost 60 percent less than it did in July - forced significant cost-cutting measures for the Venezuelan government and the sweeping social programs favored by leftist President Hugo Chavez.

Venezuela’s budget for 2009 was created with a $60 per barrel price tag in mind. But with prices hovering in the $30 to $40 range, the Chavez administration has acknowledged that its social efforts, both at home and abroad, would surely suffer.

Despite the downturn caused by falling oil prices and a worldwide economic slowdown, Mr. Chavez recently expressed confidence in the Venezuelan economy and its oil industry to weather difficult times. “If you ask me what measures need to be taken, I would say we’ve been taking them,” he said.

Mr. Chavez maintains that the reduced exports to the United States are part of his plan to increase exports to oil-hungry countries like China.

In 2007, Venezuela exported 1.28 million barrels per day of oil and other petroleum products to the United States from January through April. During the same period this year, export levels dropped to 1.13 million barrels per day, according to a recent report by the U.S Energy Information Agency.

His confidence aside, Mr. Chavez appeared to be caught off-guard by the severity of the OPEC cuts when it was announced last month that a favorite social program of the Chavez administration was being shut down: free heating oil for thousands of poor Americans.

The program was cut, then quickly restarted two days later following the international attention the project’s cancellation placed on the plight of PDVSA and Venezuela’s economy.

The discounted-oil program has riled anti-Chavez Washington. U.S. critics contended the program was more about propaganda than charity, part of the ongoing tensions between Venezuela and its largest oil customer, the United States.

While Mr. Chavez maintains his country will “endure difficult times in years to come, no doubt,” it seems unlikely that PDVSA will be able to endure without some much-needed foreign investment.

Over the past few years, under Mr. Chavez’s orders, PDVSA has been renegotiating contracts with foreign oil companies to give Venezuela a greater controlling share of projects. Several foreign companies chose to pull up stakes rather than endure a contract renegotiation.

But with oil prices dropping and PDVSA unable to meet even reduced production needs, the Venezuelan government has been forced to once again begin courting foreign oil in hopes of jump-starting production and perhaps provide PDVSA with much-needed capital for infrastructure improvements long put off in favor of Mr. Chavez’s social spending.

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