Venezuela displacing Iraq as chief oil market worry

The prospect of regime change in Venezuela has become a bigger factor in oil markets than that of regime change in Iraq.

The main reason for that difference, which has helped New York next-month crude futures prices to over $33/bbl Jan. 3, is that the Venezuelan oil supply disruption has already occurred. And markets are already feeling the effects.

The most notable effect in the US has been the scramble for supply to offset the loss of about 1.4 million b/d of crude and about 300,000 b/d of refined products from Venezuela. That is being reflected in a US oil stocks picture already squeezed to historically unhealthy levels. For the week ended Dec. 27, the US Department of Energy reported that US crude oil stocks fell by 9.1 million bbl to 278.3 million bbl and that US oil imports plunged by 1.514 million b/d to 7.631 million b/d.

This situation prompted calls from some US refiners to the Bush administration to begin drawing down crude from the Strategic Petroleum Reserve. That is unlikely to happen unless a total Venezuelan outage persists to the point where it coincides with an allied attack on Iraq.

Ramping back up

Just as with Iraq, there are misconceptions about Venezuela's capability to ramp production back up once things settle down again.

Before the strikes began in November, Venezuela was producing close to its capacity at 2.95 million b/d, up from 2.5 million b/d last April, during the aborted coup attempt against President Hugo Chávez. The embattled president had abandoned his adherence to Venezuela's Organization of Petroleum Exporting Countries quota shortly after that revolving-door noncoup; before November, output had steadily risen back up to almost 3 million b/d to help quell local discontent.

While Venezuelan production ramped back up, the country's OPEC quota compliance plummeted to less than 50% from the precoup level of 100%.

Yet this raised no alarms within OPEC, as it coincided with the Saudi-led, de factor policy of allowing quotabreaking to offset the loss of Iraqi supplies in the spring and summer.

Now that the Venezuelan strike has removed such a large volume of crude from markets at a time when seasonal demand is high and another supply threat looms on the horizon, it has some in OPEC speculating on the possibility of ratcheting up group output again to fill the supply gap.

A mechanism already exists to implement this increase: OPEC's agreement to boost output in 500,000 b/d increments should the OPEC basket of crudes remain above $28/bbl (roughly $30/bbl for New York Mercantile Exchange crude futures) for more than 20 trading days. A similar mechanism exists for the downside, but in practice OPEC has been quicker to act on the downside than on the upside.

Scenarios

The circumstance most likely to lead to OPEC taking this step in the absence of simultaneous Iraqi and Venezuelan outages—and it could be accomplished with a series of phone calls and faxes rather than a full ministerial meeting—would be a prolonged strike with worsening bloodshed or even a sustained civil war in Venezuela.

Yet those prospects seem unlikely as well. The Venezuelan military has long been the key stabilizing influence in that country's politics. While there is a sharp division within the military as well, it is more likely that the Venezuelan military factions will resolve their differences than will the strikers and Chávez supporters. Recognizing Chávez's growing untenability will likely push more of the military leadership into solidarity with the strikers, and the degree to which this situation can be resolved with a minimum of further bloodshed will depend on how fanatic the Chávez loyalists in the military are.

Either way, a resolution is likely to come sooner rather than later. The betting here is that Chávez will be forced to cede power to an interim junta comprised of both military factions that will call for early elections. Venezuelan oil exports will quickly return to normal—perhaps just in time for the first attacks on Iraq later this winter.

And OPEC concern over a rapid rise in Venezuelan production thereafter must be tempered by the loss of about 400,000 b/d in capacity since Chávez's assumption of power spawned a disinvestment trend. The heavy oil megaprojects' projected doubling of volume in the years ahead will be needed to offset a natural decline that is pegged at 9%/year and that is unlikely to reverse for several years even after spending revives.

(Online Jan. 6; author's e-mail: bobw@ogjonline.com)

OGJ Hotline Market Pulse
Latest Prices as of Jan. 6, 2003

OPEC basket price data were unavailable for the period shown; the New Year's holiday also affected London and New York price data.

Click here to enlarge image

null

Click here to enlarge image

null

Nymex unleaded

Click here to enlarge image

null

Nymex heating oil

Click here to enlarge image

null

IPE gas oil

Click here to enlarge image

null

Nymex natural gas

Click here to enlarge image

null

NOTE: Because of holidays, lack of data availability, or rescheduling of chart publication, prices shown may not always reflect the immediate preceding 5 days.

*Futures price, next month delivery. #Spot price. @New contract

Related Articles

PTT Global Chemical lets contract for Ohio ethylene complex

09/04/2015 PTT Global Chemical (PTTGC), Thailand’s integrated petrochemical and refining company, has let a contract to a team led by Fluor Corp. for front-en...

BHI: Down 13 units, US oil rig count falls for first time in 7 weeks

09/04/2015 The overall US drilling rig count’s 13-unit drop during the week ended Sept. 4 entirely comprised oil-directed, land-based units, according to data...

MARKET WATCH: NYMEX oil prices holding steady before Labor Day weekend

09/04/2015 The price for light, sweet crude oil for October delivery settled modestly higher on the New York market to remain above $46/bbl on Sept. 3 before ...

Second segment of Aegis pipeline complete

09/03/2015 Enterprise Products Partners LP (EPP) has completed construction of the Aegis pipeline segment connecting Beaumont, Tex., with Lake Charles, La.

Russia’s Sibur-Gazprom Neft JV commission gas processing plant

09/03/2015 A joint venture of Russian conglomerate PJSC Sibur Holding, Moscow, and PJSC Gazprom Neft, St. Petersburg, have commissioned the newly built Yuzhno...

Holly Energy to buy half of Frontier Pipeline

09/03/2015 Holly Energy Partners LP, Dallas, reported it would acquire 50% interest in Frontier Pipeline Co., owner of the Frontier Pipeline, from an affiliat...

Inpex submits revised plan to Indonesia for Abadi LNG project

09/03/2015 Inpex Corp., Tokyo, has submitted a revised plan of development to the Indonesian government for the Abadi LNG project in the Arafura Sea. It envis...

Unit fire slashes Syncrude output until end-September

09/03/2015 Syncrude Canada Ltd.’s upgrader in the Mildred Lake oil sands production area, about 40 km north of Fort McMurray, Alta., will operate at reduced r...

MARKET WATCH: NYMEX oil prices end with a gain despite oil supply build

09/03/2015 The price for light, sweet crude oil for October delivery fell for a while during Sept. 2 trading following a government report that showed a US oi...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


Operating a Sustainable Oil & Gas Supply Chain in North America

When Wed, Oct 7, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.

register:WEBCAST


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected