Venezuela’s Elections and What They Mean for Global Oil Supply

on Oct 4, 2012
Listen

Oil prices fell sharply on Wednesday 3 October as gloomy economic data from Europe and China rekindled worries about weakening global demand. Brent crude, which is used to price international varieties of oil, fell $3.40 to $108.17 a barrel, while WTI settled at $88.14. On Thursday, following positive US economic reports, both benchmarks registered small gains with Brent rising 20 cents to $88.33 and WTI 66 cents to $108.83.

China is the world’s second-largest economy and imports huge amounts of oil among other commodities. Only days after the Chinese government released data indicating that manufacturing continues to slow, the National Bureau of Statistics and the China Federation of Logistics and Purchasing reported that the official purchasing managers’ index for the service sector fell to 53.7 in September from 56.3 in August.

Crude oil imports in the country fell to 4.3 million barrels per day in August, their weakest level since October 2010, according to a report by Bank of America Merrill Lynch analysts. Oil prices could rebound if the Chinese economy improves its economic growth in 2013 but the current weakness in European economies and US stockpiles reaching their highest in 15 years signal that there would be plenty of supply.

The Financial Times reported of a possible drastic change in the global oil supply coming from an unexpected source – Venezuela, which for the first time since Hugo Chávez won the presidential elections in 1998 faces the possibility of a new head of state. Recent polls show that Henrique Capriles, the opposition candidate in Sunday’s elections, is neck and neck with the leftist leader. Chávez, who is allegedly still battling cancer, rationed his public appearances, while his youthful opponent went all over Venezuela as part of his campaign efforts. Last Sunday Mr Capriles managed to gather several thousand people for the closing of his electoral campaign in central Caracas, where Chavez used to hold his strongest rallies.

!m[](/uploads/story/525/thumbs/pic1_inline.png)If the opposition wins, they have promised to boost oil production to 6 million barrels a day up from the 2.8 million in September this year. Venezuela holds massive reserves of low-quality, tar-like crude so doubling its oil production is not impossible for the Latin American country. Back in the 1990s the “Apertura Petrolera” programme, later cancelled by Chávez, was meant to double production by transforming Petróleos de Venezuela (PDVSA) into one of the world’s largest oil companies. As the FT reported, Mr Capriles will not be able to revive “Apertura Petrolera” but could possible encourage cooperation between PDVSA and international oil giants, which are likely to be attracted by Venezuela’s reserves.

Hugo Chávez has also promised to boost production to 6 million barrels a day over the next 20 years by developing the ultra-heavy crude oil from the Orinoco Belt. He is unlikely to deliver on that promise given that his relations with most international oil companies are ice-cold and it will be extremely difficult to find a partner with the required resources to get into bed with him.
However, if Capriles wins on Sunday, the large internationals may well be open to be convinced back into Venezuela and a major new oil supplier might emerge and exert additional downward pressure on the prices of the black gold.

Ad

Invest in commodities like Gold, Wheat, Lithium, Oil & more in minutes with our highest-rated broker, eToro.

10/10

eToro offers real assets only, no CFD products. eToro USA LLC and eToro USA Securities Inc.; Investing involves risk, including loss of principal; Not a recommendation.

Visit site

Featured Broker

Looking to invest?

Invest globally in stocks, options, futures, currencies, bonds and funds from a single unified platform, with our highest-rated broker.

Ad
Oil Commodity Energy Energy & Power Stock Market