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Crisis in Venezuela: lower oil prices are not on the cards?

28 January 2019 10:05 (UTC+04:00)
Crisis in Venezuela: lower oil prices are not on the cards?

By Trend

If government change actually happens in Venezuela, it will take time before a new government takes control, makes changes and reorganizes the oil sector to the extent that there is significant recovery in Venezuelan oil exports this year, Charles Ellinas, CEO of Cyprus-based energy consultancy e-CNHC told Trend.

He was commenting on the political crisis in Venezuela and its possible impact on the world oil market.

Venezuela is embroiled in fast-moving political crisis, after an opposition leader stood in the streets of Caracas on Jan.23 and declared himself as the rightful interim president.

A flurry of world powers, including the US, immediately backed Juan Guaido, prompting a furious response from President Nicolas Maduro.

The socialist leader broke diplomatic ties with President Donald Trump's administration on Jan.23, ordering all U.S. diplomatic personnel to leave the country within 72 hours.

He believes that anyway, the US will carry on with shale oil development irrespective. "The only factor that can slow this down is low oil prices, which, with OPEC+ cuts and Iran sanctions, as well as a slower growth in the Chinese and global economies, is not on the cards."

He went on to add that the impact of the ongoing developments in Venezuela on the oil market so far the impact has been small.

"There is some way to go yet before the political situation becomes clearer. The current President, Maduro, is not in a hurry to get out and the army is supporting him. Without army support Guaido cannot do much even after recognition from the west. Venezuela's oil production has been declining. It was 1.2 million b/d in December. The average in 2017 was over 1.9 million b/d. However, if the US proceeds and applies sanctions then the decline in oil exports may become more significant and may have an impact later in the year," said Ellinas.

He reiterated that there has not been government change yet and it may take time before this happens.

"Given the low and declining oil exports from Venezuela, the impact on OPEC is not major. This year the key developments to affect the oil price are: a) What happens with Iran sanctions and the wavers the US granted. If these are not renewed then it will impact the oil price. b) OPEC+ cuts. These seem to be effective so far and should keep the oil price above $60/d. d) US shale oil production. Indications are that this will increase further this years. In effect it counter-balances the decline in Venezuelan oil exports. Given the rate of decline during the last two years, the latter may decline by over 300,000 b/d in 2019, even without regime change and faster if US applies sanctions.

It appears that the oil market has been discounting the ups and downs of Libya and Venezuela."

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