Crude oil prices are in an uptrend after ending a three-day losing streak following news of a rebound in the energy market. U.S. crude futures are now trading up around $47.09 per barrel and the global Brent benchmark now trades around $51.03 per barrel. Many market watchers attribute the bounce in oil prices to data released last week, which showed that U.S. oil stockpiles have declined in nine of the last 10 weeks.
We all know that oil stockpile data rises and falls regularly and the current weakness can only provide momentary succor in the market. For one, the stockpiles are currently below last year’s stash but they are still very much above the 5-year average for oil stockpiles.
However, another budding trend that could provide tailwinds for oil in the medium to long terms is that Venezuela’s oil infrastructure is starting to show signs of a crack. The loss of Venezuelan oil in the market could be the boost that OPEC needs to get oil back to winning ways.
Don’t expect much oil from Venezuela going forward
Venezuela occupies an important place in the global crude oil markets. Venezuela controls the world’s largest proven crude oil reserves. We can still remember how Libya’s exit and reentry into the global energy market jostled oil prices up and down. Venezuela’s oil problems could cause OPEC to lose about three-times the crude oil supply that was lost during the Libyan crisis. Hence, an uptrend is oil price is on the horizon as the Venezuelan oil situation continues to worsen.
OPEC has been trying very hard to reduce the volume of oil supply in the market in order to lift oil prices. Harry Peterson, an analyst at ECN Capital notes that “Venezuela might be the unwilling sacrificial lamb that will help OPEC reduce the volume of crude oil in the market.” For one, the country has pledged much of the 2.2. million barrels of oil that it pumps paying its debt to Chinese and Russian creditors. The country also needs to reserve some of its crude for domestic use. Going forward, oil investors might start to see an uptrend in oil prices as Venezuelan oil dries up from the market.
Here is why oil could rise as Venezuelan oil supplies dries up
The problems facing Venezuela are multifaceted and the problems are weighing down the country’s oil infrastructure. The country has serious leadership problems, its economy is in shambles, the citizenry are fed up with the government, and the government mostly has a rocky relationship with stakeholders in the international community.
Before Hugo Chavez came into office in 1999, Venezuela was producing about 3.4 million barrels of oil per day. In last 2015, the official production numbers stood at 2.5 million barrels per day. However, official production data now suggests that Venezuela produces 2.2 million barrels per day but official data suggests that the real number is around 1.9 million barrels per day.
The more worrisome development trailing Venezuela’s oil problem is that the country now has to import light crude oil to mix with its heavy crude oil in order to augment domestic consumption. The worst part is that Venezuela doesn’t have the cash to fund such imports, it lacks the money to maintain and get its oil infrastructure back in top shape, and it lacks the creditworthiness to seek debt funding. Hence, things are about to get messier in the Venezuelan economy as its oil dries up from the market.