Venezuela Unrest Could Rattle Oil Market

The uprising in Venezuela, in which President Nicolas Maduro is in a power struggle against U.S.-backed opposition leader Juan Guaido, has the attention of the world oil market. Venezuela has traditionally been one of the world's largest crude oil producers, but the socialist country's oil exports have plummeted in recent months amidst the chaos and instability surrounding the nation's leadership. U.S. imports of Venezuelan oil have completely dried up due to sanctions placed on the Maduro regime. The U.S. has pledged to lift those sanctions if Guaido takes power.

The steep drop in Venezuelan exports into the world market, combined with OPEC's continued reduced production, could weaken global oil supplies and cause an increase in crude prices. But Ed Hirs, energy fellow at the University of Houston, says none of this is a big surprise to market observers. "This has been going on now for several years, as the Venezuelans have essentially run down their production and become less and less of a factor in the world market," he tells KTRH. "In as much as some Venezuelan crude is not getting to market, that could cause a marginal increase in price. But it's not going to be very significant...the market has priced this in."

As for any possible harm the Venezuela situation could bring to the booming Texas oil market, that will also likely be minimal. "It's not going to be much of an impact, certainly not for West Texas crude," says Hirs. "The West Texas crude is lighter and a different grade of crude than what we get from Venezuela."

The heavier crude produced by Venezuela is also replaceable, as Texas has found out due to the sanctions on Venezuela. "Venezuelan crude is a heavy crude, which is well-suited to Gulf Coast refineries," says Hirs. "But a lot of that is being replaced by Canadian crude and also by heavy crude from Saudi Arabia."

 

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