By Marianna Parraga
CARACAS, June 27 (Reuters) - Venezuela wants OPEC to set an oil price band of $80 to $120 a barrel to stem crude's recent tumble, seeking to revive a policy the cartel scrapped seven years ago.
The Organization of the Petroleum Exporting Countries in 2000 adopted a $22-to-$28 band, requiring members to cut or raise output to keep prices in that range.
The policy worked during the initial years but fell apart as rising demand from China pushed prices irreversibly through $30 in 2004 and the group did not raise the band.
"We need to restore the band system," Energy Minister Rafael Ramirez told Reuters late Tuesday. "It could be between $80 and $120 right now, that would be sufficiently wide to allow flexibility."
The Venezuelan idea comes as oil prices have plummeted in the last two months on concerns the euro zone crisis and anemic economic growth in China could weigh on energy demand.
Brent crude has fallen about $35 from the year's high of $128.40 hit in March and sank last week below $90 for the first time in 18 months. U.S crude had dropped $30 from its 2012 of $110.55 also struck in March.
On Wednesday, Brent rose above $93 while U.S. crude rose above $80.
The band system fell by the wayside in part because OPEC countries never raised the original band to adjust for inflation and rising overall demand for crude.
Raising the band became a political issue that pitted producer nations against consumer countries, meaning that by 2005, the easiest option was to simply abandon the system.
Ramirez, who is also head of state oil company PDVSA , said a fall in crude prices to $90 a barrel was a threat to core oil projects around the world.
"Right now, it's a case of holding on to see if the prices are going down for circumstantial reasons," he said. "But if the situation continues, we are entering a risk zone. Anyone who enters into play like this in the oil market is shooting themselves in the foot."
An official at OPEC's headquarters declined to comment.
Venezuela has traditionally been one of OPEC's most hawkish members, in part because it depends on crude for more than 90 percent of export revenue.
Full coffers are even more important for the government of President Hugo Chavez this year, as the socialist former soldier needs to spend big on social programs to ensure victory in an Oct. 7 re-election bid.
Former OPEC Secretary General Alvaro Silva, who also served as Venezuela's energy minister, told Reuters that OPEC should not have abandoned the band system but rather adjusted it for changing circumstances.
"It was never adjusted and the mechanism was not applied consistently, because it was a reference and not an obligation," Silva said. "The idea is to reduce volatility."
Iran, an ally of Venezuela in OPEC, did not immediately dismiss the idea, pointing out that the $100 middle of the band proposed by Caracas is where many producers including Saudi Arabia want prices.
"This issue should be discussed if it is proposed officially to OPEC," said Iran's OPEC governor, Mohammad Ali Khatibi. "Venezuela is not the only country to believe the price should be around $100. The question is how do we protect this level."
But a Middle East OPEC delegate immediately dismissed the idea as a non-starter.
"They are out of their minds. Having a band was never successful in the past and won't be successful now," the official said. "Its OK to have a band when the prices are going up, but what happens when the price goes down? You'll have to keep cutting production? This is out of the question."
Venezuela has in recent months been at loggerheads with OPEC top dog Saudi Arabia, which has continued to pump crude at full steam despite the weakening prices and calls by the South American nation to cut output.
"Several factors are affecting the price of oil, the crises in the United States and Europe are very serious (and) Saudi Arabia is producing close to 2 million barrels per day above the OPEC (ceiling)," Chavez said during a chat with reporters at the presidential palace on Tuesday.
He defended $100 per barrel as a fair price for oil.
Supporters credit Chavez with helping unite the organization in the late 1990s when prices touched rock bottom and countries were routinely flouting quotas.
But the cartel now appears increasingly fractured between hawks such as Iran, Ecuador and Venezuela, and Gulf countries such as Saudi Arabia, Kuwait, and Qatar that favor more moderate prices. (Additional reporting by Amena Bakr in Dubai, Alex Lawler in London, writing by Brian Ellsworth and Andrew Cawthorne; Editing Richard Mably, John Picinich and Marguerita Choy)