In Venezuela, the government announced that the public sector, which provides about 30 percent of the country’s jobs, will only work two days a week to save electricity. The situation in the country is becoming critical. The government will no longer announce the water level behind the dam, which could be only a week or so away from shutting down depriving the country of some 65-70 percent of its power production. Much of the future depends on when the rainy season begins, and how quickly it brings water levels up to operating levels. Some are saying that the thermal electric plants that used to provide about a third of the country’s power are breaking down for lack of maintenance leaving the Guri dam as the only source for much of the country’s electricity. It seems increasingly likely that the social fabric of the country could collapse soon endangering the country’s oil exports and eliminating much of the world’s oil surplus at one stroke.
Oil prices continued to climb this week, capped by a 3 percent jump on Wednesday, which set new highs for 2016. The move came despite a 2-million-barrel increase in US crude inventories last week and a 5.2-million-barrel increase in total commercial petroleum inventories. Analysts and major financial institutions continue to say that a price rally is premature at this time. They point to increasing inventories, Cushing was up by 1.74 million barrels last week, and that the Saudis continue to increase production. In recent days, speculators have been pointing at the weaker dollar, brought about by the Federal Reserve’s failure to increase interest rates as justification for higher prices. Brent closed at $47.18 on Wednesday and New York at $45.33, but were lower in early trading on Thursday.
Support for the price rally comes from continuing drop in the US oil-rig count and US oil production which is down about 700,000 b/d in the last year. A case can be made that US production decline is being offset by increased production and exports from the Middle East. The continuing increase in US crude inventories suggests that limits to storage capacity remain an issue.
The woes of the US oil industry continue to grow with Exxon losing its AAA investment rating and numerous oil companies reporting sharply reduced profits or larger losses. The oil services industry which largely supports new drilling has been badly hit by capital spending by oil companies now some 50 percent of 2014 levels.
Over in Iraq, the political situation continues to deteriorate with Prime Minister al-Abadi unable to confirm a new cabinet amongst much turmoil. The situation in Iraqi Kurdistan is not much better with oil exports in 2016 lower than last year. The Kurds are negotiating to build an export pipeline through Iran thereby bypassing the never-ending conflict between the Kurds and the Turkish government. It is becoming apparent to the Kurds that dependence on the one oil export pipeline through Turkey will not be a solution to their troubles.