• 5 minutes Mike Shellman's musings on "Cartoon of the Week"
  • 11 minutes Permian already crested the productivity bell curve - downward now to Tier 2 geological locations
  • 17 minutes WTI @ 67.50, charts show $62.50 next
  • 2 days The Discount Airline Model Is Coming for Europe’s Railways
  • 16 hours Desperate Call or... Erdogan Says Turkey Will Boycott U.S. Electronics
  • 1 day Pakistan: "Heart" Of Terrorism and Global Threat
  • 11 hours Renewable Energy Could "Effectively Be Free" by 2030
  • 4 hours Starvation, horror in Venezuela
  • 12 hours Saudi Fund Wants to Take Tesla Private?
  • 1 day Venezuela set to raise gasoline prices to international levels.
  • 24 hours Are Trump's steel tariffs working? Seems they are!
  • 2 days WTI @ 69.33 headed for $70s - $80s end of August
  • 2 days Scottish Battery ‘Breakthrough’ Could Charge Electric Cars In Seconds
  • 4 hours China goes against US natural gas
  • 1 day Corporations Are Buying More Renewables Than Ever
  • 5 hours Why hydrogen economics does not work
Alt Text

Egypt Aims For Natural Gas Dominance In The Mediterranean

Positioned on the Mediterranean Sea…

Alt Text

India’s Largest Refiner Plans $25B Output Boost

India’s largest refiner, Indian Oil…

Alt Text

Cracks In Global Economy Weigh On Oil Markets

Oil prices fell this week…

James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

More Info

Trending Discussions

Oil Prices Could Spike As Analysts See Venezuela Losing 500,000 bpd

Caracas, Venezuela

Oil prices have surged by more than 80 percent since February on the back of unexpected supply disruptions. But the market could be missing yet another potential supply disruption that could push up prices.

Venezuela’s oil production could fall by a half million barrels per day in 2016, according to a recent estimate from Barclays. Electricity blackouts, financial distress, lack of maintenance, and a shortage of imported light oil for processing could lead to faster declines in the South America nation. Venezuela has already seen 120,000 barrels per day knocked offline because of blackouts, an outage that comes on top of years of gradual declines because of underinvestment in the country’s oil fields. The economic crisis could even force the state-owned PDVSA to default on debt later this year, according to a recent assessment from Moody’s. The oil markets are not yet pricing in this potential supply outage.

Venezuela is home to the world's largest oil reserves – at 298 billion barrels of proved oil reserves, Venezuela even exceeds Saudi Arabia in terms of the sheer size of its resource base. But unlike Saudi Arabia, much of Venezuela’s oil comes in the form of heavy oil, which requires much higher levels of investment and processing. On top of the lack of investment and maintenance in the nation’s oil fields, Venezuela has also run low on light oil that it needs in order to dilute its heavy crude for processing. Without the cash to import light oil from abroad, PDVSA could have trouble maintaining output.

Related: Google And Uber Threatening Car Industry Giants

The economic crisis that has seen riots, desperate food shortages, and horrific conditions in the country’s hospitals, is also hitting the oil sector in other ways. Venezuela’s oil industry is running low on spare parts, making maintenance difficult to conduct, and the withdrawal of several international oilfield service companies also threaten a deeper contraction in output. The crisis is also crushing morale among PDVSA’s workforce, as hyperinflation erodes their pay. "Workers' moods are in the dumps," Francisco Luna, a union leader in the oil-producing area of Lake Maracaibo, told Reuters in mid-June. "Every day it's worse. Maintenance is lacking, equipment is lacking."

Venezuela is running out resources that it needs to meet debt payments to creditors. The government has prioritized meeting bond payments, but the crisis is so deep that the country is in talks with China to extend repayment terms.

Barclays laid out several scenarios for Venezuela’s oil sector. Its worst-case scenario sees output falling by 500,000 barrels per day in 2016, taking overall production down to 1.7 million barrels per day.

This would have profound implications for global oil prices. Notably, the oil market was only oversupplied by about 500,000 barrels per day before the outages in Canada in Nigeria, Barclays estimates. Although it is hard to know in real time, the oil market is arguably already in balance. The return of Canadian production could prevent sharp price increases, but with the markets naturally moving towards a more decisive balance later this year, unexpected disruptions from countries like Venezuela could tip the global market into deficit. Related: NASA May Have Just Transformed Aviation With 100% Electric Plane

“It definitely tightens the balance and raises the call on shale oil,” Michael Cohen, an analyst at Barclays, said of Venezuela’s falling oil production. “During the peak summer months, people will see how much inventory has been drawn down.”

A sizable outage from Venezuela would, as a result, mean that oil prices could rise much faster than expected. Although notable forecasters such as investment bank Goldman Sachs see little upside to oil prices in the near-term, not everyone agrees. Raymond James took a more bullish note this week, projecting $80 per barrel by the end of 2017.

If Venezuela cannot stop its economic and political crisis spreading deeper into its oil industry, the forecasters at Raymond James will be closer to the mark than Goldman Sachs.

By James Burgess of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News