The glut around the corner?


CNN is reporting that other countries are joining Saudi Arabia and raising crude production in light of the prolongued conflict in Libya. The list, as you can fathom, does not include Venezuela.

The money quote is from Michael Wittner, head of oil research at Société Générale: “The oil markets are pricing in an extended Libyan shutdown of crude exports”

So…if the Libyan civil war ends soon and its oil exports rise back to their normal levels, will we be looking at a glut in the oil market? It’s not like the Nigerians and the Kuwaitis are going to shut down their oil wells again all that easily.

And if this materializes and the price of oil plummets, what will happen to Hugo Chávez’s chances of getting re-elected? Is this turmoil good or bad for the opposition?

The consensus seems to be that the events in the Middle East and North Africa are a plus for non-Middle East petro-goons.

I’m not so sure. If years of experience have taught us anything, it’s that volatility breeds discontent.And at this point, who knows what the price of oil is going to be doing. Let’s remember that in 1990, CAP in Venezuela was enjoying the windfall related to the invasion of Kuwait. A year and a half later, when oil prices had come back to earth, he was the most unpopular president ever, battling coups and impeachment.

We’ll have to wait and see how the government – and Venezuelan society – ride this roller coaster.

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  1. Really, Juan? You’re going to go on record with a specific prediction for the oil market in this international climate?! Really?!

    (And don’t you know that framing your specific predictions as questions is a weasly way of seeming to cast doubt on them while firmly planting them in the reader’s mind?!)

    Man, you must really like the feel of that yolk as it runs down your cheek…

    • Really, Quico? There are three “ifs”, four “will there be”s, eight “I’m not so sure”s, seventeen question marks, and you’re calling this a prediction?

      I think I’ve hedged my post enough to avoid yolk on my face.

        • I think the bigger picture is this: oil spikes caused by political turmoil tend to die down. The question is when. And when the price of oil comes crashing down, countries find it really difficult to adjust.

          So my post was to simply convey the feeling that the Libya situation, with all its fluidity, does not necessarily translate into a boon for Chávez. We’ve been on this ride before.

          Now, if Saudi Arabia lights up… all bets are off.

  2. I read the prediction as volatility in the market, with a likihood prices will go south, and agree. I think this conflict will be over sooner than later, and there will be strong international support to get production back up, and to stabilize the country. This will also encourage more projects in the more country. Lower oil prices follow, implying less $’s for Venezuelan imports..

  3. “If years of experience have taught us anything, it’s that volatility breeds discontent”

    I agree with that, though not quite in the same sense that you use it. This is the second time in a few short years that the gringos and europeans (and everyone else but Venezuelans for that matter) have seen the price of their gas skyrocket in a matter of weeks. Even from all the way to my house I can hear them screaming “‘I’m as mad as hell, and I’m not going to take this anymore!”

    There is already a huge amount of pressure for supporting alternatives to oil, and this new crisis will do the trick and convince the few remaining doubters that we must end the dependency on oil as soon as physically possible, no matter what the short-term cost might be.

  4. Francisco, this time J.C. is right.

    I must say I hadn’t look at it from that point of view, and I agree with him. First, there are many “if” around. But the idea is simple: if production goes up now, what will happen when the Libya crisis is over? once you get the drills and pumps up in motion to stop them is not easy at all. It may even be counter producent.

    I may be totally wrong (and this is NOT a forecast) but if I understood JC correctly is pretty obvious actually. Many things can happen, and among those posibilities there are escenarios where the actual increase of the oil price may not be good for Hugo Rafael.


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