Oil production rises in Venezuela; crippling strike goes on

newsobserver.com Friday, January 24, 2003 4:28PM EST By CHRISTOPHER TOOTHAKER, ASSOCIATED PRESS

CARACAS, Venezuela (AP) - Oil production is slowly picking up in Venezuela, a sign President Hugo Chavez may be gaining in his efforts to break a nearly 2-month-old strike.

But Chavez still has a long way to go to overcome the strike's devastating effects on the economy, already in recession when the walkout began Dec. 2 with the goal of ousting his left-wing, populist regime. Dissident executives at the state oil monopoly Petroleos de Venezuela S.A. said production was 855,000 barrels of crude on Friday, up from 812,000 barrels a day earlier. State oil company President Ali Rodriguez insists crude production has surpassed 1 million barrels per day.

Venezuela, the world's fifth-largest oil exporter and a major U.S. supplier, produced 3 million barrels a day before the strike. At one point in December, production slipped to as low as 150,000 barrels per day.

It remains to be seen whether exports, averaging around 450,000 barrels a day, will follow suit. If oil isn't shipped, inventories pile up and no space remains for freshly produced oil.

Many tanker pilots returned to their jobs this week, but foreign shippers remain reluctant to use Venezuelan ports because regular docking and support personnel haven't abandoned the strike.

Ed Sillierre, vice president of risk management at Energy Merchant LLC in New York, called the decision by pilots "the first chink in the armor."

Persuading pilots to return to work was "a very smart strategic move on Chavez's part. It really drove the stake into the heart of opposition movement," Sillierre said.

"Can he ride this thing out? Now I would say yes," he added.

The state oil monopoly employs about 40,000 people. Rodriguez told the state news agency Venpres on Thursday that most oil workers and half the company's administrators have abandoned the strike. But Fedepetrol, the largest oil workers union, insisted 17,000 of its 20,000 workers haven't returned to work.

"We are winning the petroleum war," Chavez told hundreds of thousands of his supporters at a rally in Caracas on Thursday.

"It's going to be a difficult year, but who says we can't overcome the difficulties?" he said.

Chavez may be making headway in his push to revive oil production, but that doesn't mean domestic fuel shortages will return to normal anytime soon. Venezuela only refines a fraction of its crude oil for domestic consumption, and the few refineries used for that purpose are still far from full capacity.

"Domestic consumption will be an issue for a long time," Sillierre said. If the strike were to end immediately, "Venezuela would be importing gasoline easily through March, quite possibly into the summer," he said.

Chavez must also face the effects of damage already done to the nation's oil-dependent economy. Almost half of Venezuela's income, 80 percent of export earnings and roughly a third of the country's $100 billion gross domestic product come from oil exports.

The government has acknowledged losing over $4 billion in income so far.

Finance Minister Tobias Nobrega announced a $1.5 billion cut this week in Venezuela's $25 billion budget. Cash-strapped opposition governors and mayors claim they may not be able to pay public employees at the end of the month.

The Santander Central Hispano investment bank has warned that Venezuela's economy could contract as much as 40 percent in the first quarter of 2003 if the crisis isn't resolved soon. The economy shrank by an estimated 8 percent in 2002. Unemployment is 17 percent and inflation is 30 percent.