Mexico, Venezuela Plan Joint Oil-Pricing Strategy

Mexico and Venezuela, key U.S. oil suppliers, said Friday that they will try to coordinate their oil pricing strategies in an effort to maintain their share of the glutted world oil market.

Presidents Jaime Lusinchi of Venezuela and Miguel de la Madrid of Mexico announced the new step in a joint communique issued one day after a series of closed-door talks in this Caribbean resort.

It was considered an unprecedented formal agreement between a member of the Organization of Petroleum Exporting Countries and a non-member. Venezuela belongs to the oil cartel; Mexico does not.

The communique said Mexico and Venezuela will set up a high-level petroleum cooperation committee of officials from their energy ministries and state oil companies. The panel’s objective will be to “arrive at decisions that protect the interests of both countries.”

The two presidents also will call a meeting of Latin American countries to discuss their foreign debts and the impact that the world oil crisis is having on their economies, the communique said.

(Shortly after the two leaders issued their communique, Mexico announced, as expected, that it was retroactively cutting the price of its various crude oils by $2.50 to $5.85 per barrel. The reductions to the $18- to $21-per-barrel range reflect the collapse in world oil markets in January.

(Mexico has said it will follow the market by setting prices for the month at the end of each month, a policy aimed at defending its market share. The new prices are retroactive to Jan. 1, said Pemex, the Mexican state oil company.

(Analyst Peter Beutel of Rudolf Wolff Futures, a New York brokerage, said Mexico’s new prices further legitimize the prices in the spot and futures markets as the prevailing prices. Contract prices remain in the $23- to $25-per-barrel range.)

In the communique, the presidents expressed their “deep worry” about the volatile oil market and the effect of falling prices on their debt-laden economies.

Both nations depend heavily on oil earnings to pay their debts to foreign bankers. The recent declines in oil prices, mostly below $20 a barrel, have raised concern about their ability to continuing meeting those payments.

The presidents urged both oil producers and consumers to strive for stability in the market. The communique said the market’s “accentuated instabilities” jeopardized efforts by oil-producing countries to reorder their economies.

It said Mexico and Venezuela were suffering a reduction in oil income “of such magnitude that it cannot be absorbed exclusively with internal adjustments because it would cause an unacceptable deterioration of the living standards of our people.”

The communique was read by Francisco Labastida Ochoa, Mexico’s energy and mines secretary. Both presidents issued brief statements but declined to answer questions.

Mexico recently has caused concern among other exporting nations by a new policy of fixing prices at the end of the month, retroactive to the first day of the month.

Venezuela has been particularly worried about the Mexican strategy, which enabled it this week to sell under contract 20,000 more barrels daily to Japan.

Diplomatic sources who spoke on condition of anonymity said Venezuela failed in an effort to pressure Mexico into reversing its pricing policy.

Mexico, instead, apparently convinced Venezuela of the need to defend market shares instead of concentrating on prices.

At the same time, Mexico wants to work toward restoring market stability through diplomatic overtures to both producing and consuming nations.

Mexico, with a foreign debt of $96.4 billion, second highest in the developing world after Brazil, earns about 70% of its foreign exchange from oil exports.

Venezuela, which owes foreign creditors $35 billion, depends on oil for 90% of its export earnings.

Mexico slashed its average price by 90 cents a barrel in December. The cost to the United States is $26.25 a barrel for light Isthmus crude and $22 for the heavy Maya brand. It differs for other geographical areas.

Mexico, the United States’ biggest foreign oil supplier, sells about half of its oil exports of 1.5 million barrels a day to the United States.

About 40% of Venezuela’s exports of 1.51 million barrels a day are sold to the United States, making it the third-biggest source of U.S. oil imports.