The risks of more oil production losses have intensified as the financial screws on Caracas continue to tighten. Deteriorating conditions in Venezuela are occurring at the same time OPEC is looking to extend its production cut and tensions throughout the Middle East are rising.
There’s little question the global market will lose more production from Venezuela in the coming months and years. The country's crude output is at risk of falling to as low as 1.2 million barrels per day.
The recent tension in Iraq highlights the ongoing reality of the global oil market: Many key oil-producing countries are politically unstable.
The U.S. government stopped short of a ban on oil imports from Venezuela, hoping to insulate U.S. refiners. But in the short run, Venezuela will have difficulty moving volumes to the Gulf Coast since the region has been swamped by Hurricane Harvey.
Venezuela has fallen apart as a result of corruption and ineptitude, but even more so because of its over-reliance on oil as a revenue source. Some 95 percent of the country’s export revenue comes from oil.
The possibility that Russia may soon own refineries in the U.S. if Venezuela’s PDVSA defaults on its loans from Rosneft has pushed the risks of foreign-owned energy assets in the U.S. into the spotlight. As of now, some 30 percent of U.S. refining capacity is owned by foreign companies.
In the event that Venezuela defaults on its loan to Rosneft, the Russians would assume control of critical U.S. energy infrastructure.
Venezuela’s current state of affairs is a prime example of why it’s important for economies of both producers and consumers to reduce dependence on oil. The meltdown in Caracas is a precarious situation for the U.S., given that Venezuela is its number three crude oil supplier.
The economic calamity in Venezuela is having a ripple effect on the oil market, altering long-standing trade flows and hollowing out the country’s oil-producing assets.
Even as ExxonMobil sharply increases spending on shale this year, it has also prioritized one major project in particular—a drilling prospect off the coast of Guyana.