Restive Venezuela a reminder of oil market's hazards

Nov. 23, 2015
Obscured by proper talk about falling production, rising demand, and zooming efficiency of oil field operations is the ever-present possibility that the oil market will balance itself with violence.

Obscured by proper talk about falling production, rising demand, and zooming efficiency of oil field operations is the ever-present possibility that the oil market will balance itself with violence.

Chances are unusually high that political disruption will swipe enough oil from the market to push the crude price back into the comfort zone.

No one wants a painful cycle to end this way. People suffer, even die, when political distress blows out of control in beleaguered populations of oil-producing countries. And the affiliated market adjustments tend to be fleeting.

Prospects are elevated for such a correction now because $50/bbl oil doesn't just make oil companies slash spending and lay off employees; it also destabilizes countries dependent on oil sales for national welfare.

An important oil-producing country needing attention in the next few weeks is Venezuela.

The country has long been a flashpoint, with its economy wrecked by socialist mismanagement, its growth stalled, inflation beyond control, and necessities in short supply.

Low prices combine with the subsidized oil sales on which the late President Hugo Chavez based foreign relations to ravage national accounts. Default on external debt is possible.

And an election looms. On Dec. 6, Venezuelan voters will decide whether the United Socialist Party led by Nicolas Maduro, Chavez's successor, retains its majority in the National Assembly. A decisive win by the Democratic Unity Movement would raise prospects for Maduro's ouster.

While the economic crisis stirs support for change, incumbency is powerful. Maduro recently increased the minimum wage by 30%. In September, his government jailed opposition leader Leopoldo Lopez on charges of inciting violent protests.

Concern has arisen, meanwhile, that the opposition party's focus on election fraud, coupled with memories of fatal protests after the 2013 presidential election, will discourage voting.

Maduro and his authoritarian regime thus might keep power in what many desperate Venezuelans would see as failure of their political system.

After the election, then, in a country producing 2.4 million b/d of crude oil, what?

(From the subscription area of www.ogj.com, posted on Nov. 13, 2015; author's e-mail: [email protected])