Americas News
Venezuela's Demise Could Save the Crude Market - And OPEC, Says Croft
With an attack on a military base prompting some experts to speculate that Venezuela is on the brink of a civil war, the Bolivian republic's precarious state may prove to be the crude market's best asset - far more than the questionable influence of the Organization of the Petroleum Exporting Countries (OPEC), which is currently convening in Abu Dhabi to determine how to get tough on production cutback cheats.
Seven men were arrested over the weekend for allegedly attacking a military base outside of Valencia; this coincided with social media depicting men in military fatigues calling for a rebellion against president Nicolas Maduro.
Stuart Culverhouse, global head of macro and fixed income research at Exotix Capital, noted that "The significance lies in whether this suggests that Maduro is losing his grip on the military and whether we can expect to see more mutinies to come, or if this is just an isolated incident."
It has been said that the all-important military support for Maudro is eroding following the establishment last month of the National Constituent Assembly (ANC), a new legislative body comprised mostly Maduro loyalists that supersedes the country's popularly elected, opposition-led National Assembly.
Venezuela's production has slumped about 13 percent this year as its economy worsens, and international oil companies have begun pulling their workers out of the country; Helima Croft, global head of commodity strategy at RBC Capital Markets, noted that a further drop in production could effectively remove more barrels from the market and boost stagnant oil prices: "What actually could save OPEC is probably going to be Venezuela."
Croft's prediction may not take long to fulfill: aside from the prospect of civil war, sources involved with state-run oil company PDVSA say the organization is breaking apart at the seams, and Venezuela's oil production is reportedly on track to end 2017 at a 25-year low.
Croft added conflict-plagued Libya as a potential asset to global rebalancing despite its recent resurgence of crude production, but she said both it and Nigeria will have to become a true part of OPEC's cutback initiative "to make this thing work going forward."
While analysts on Tuesday focused on Venezuela's troubles, West Texas Intermediate dropped 22 cents to $49.17 per barrel and Brent dropped 23 cents to $52.14, causing Kyle Cooper, consultant for ION Energy, to remark, "It's boring, but there's a fundamental justification for prices being stuck between $45 and $55 without a significant geopolitical event."
Indeed, it's anyone's guess what the market impact will be of Saudi Arabia state oil company Aramco cutting allocations to its customers worldwide in September by at least 520,000 barrels per day (bpd), which sources familiar with the matter told Reuters on Tuesday will soon happen.
All but ignored in the debate over whether a civil war or default will happen first in Venezuela is what the strife is doing to its populace, which for several years now has been forced to withstand chaos, violence, and a lack of basic services as part of their daily routine.
