Prices and production
Oil prices continued to drop this week, settling on Wednesday at $73.67 the lowest level in a month, as the US demand for oil products continues to slip. Although the EIA reported a drop in US crude inventories of 3.9 million barrels, likely due to fog in the Houston Ship Channel, US gasoline stockpiles climbed by 2 million barrels and distillates by 400,000 barrels despite the cold weather. US refiners processed only 13.6 million b/d last week, a 13-year low for this time of year. Oil product demand for the last four weeks was down 2 percent from last year. MasterCard reported that gasoline consumption fell 0.4 percent last week from the previous week.
Oil prices have now dropped 12 percent since January 11th on concerns about growth of the US and Chinese economies. The IEA plans to meet with OPEC, banks, and the US and UK futures regulators to discuss limits on energy-price speculation. The US’s Commodity Futures Trading Commission has already proposed curtailing investment by large financial institutions in oil, natural gas, and oil products. Speculative net-long positions in oil futures were the highest in at least 27 years as of the middle of January.
Venezuela
The political situation continues to deteriorate, with opposition and pro-government protestors turning out by the thousands. President Chavez ordered a popular TV station, already taken off the air, to be taken off cable too for refusing to broadcast his lengthy political orations in their entirety. Chavez also nationalized a chain of French-owned supermarkets for alleged price gouging in the wake of his currency devaluation. Small demonstrations continued this week and are expected to continue. So far this month Chavez has merged the finance and planning ministries, replaced the environment and defense ministers and sacked the electricity minister.
In the meantime, the rolling blackouts due to the shortage of hydro-generated electricity are increasing gasoline and diesel consumption as more shopping malls, homes, and offices are turning to portable generators to keep functioning. This is expected to lead to further reductions in gasoline and diesel exports due to increasing domestic demand. Chavez is preparing to reinstate the blackouts in Caracas that were lifted last week due to the chaos they caused. The President is threatening to speed up socialism, which presumably will mean more nationalization of private firms.
In this economic and political environment it is difficult to imagine that Venezuela’s oil exports will not continue to fall – perhaps substantially.
