Something may soon give at a major oil market — and it’s not Iran
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Much coverage has been devoted to the impact new sanctions on Iran may have on the oil markets. But a slowly escalating crisis in another oil market could end up an even bigger event.
Following a snap election that is expected to give a six-year term to incumbent Nicolás Maduro, Venezuela’s oil industry could take another tumble, reported the Wall Street Journal.
Citing S&P Global Platts, the publication said the country’s recent crude production hit a low of 1.41 million barrels per day. That’s the worst in 30 years save for a 2002-2003 strike, and over half a million barrels lower than it was a year before.
And it could get even worse. “Venezuela faces two risks that, if both come to pass, could cut its oil output by more than the biggest estimates of what could happen to Iran if sanctions were reimposed,” the Journal said.
The first involves the Dutch-administered islands of Curaçao and Bonaire, which has refining and storage facilities belonging to Venezuela’s state oil company. The facilities are an important supply node for lighter-variety crude that the country needs to import and mix with its heavy oil.
After winning an arbitration award against Venezuela for seizing its assets in 2007, US producer ConocoPhillips is set on taking physical control of those facilities. Venezuela is reportedly telling its suppliers not to ship oil to those facilities as the threat from ConocoPhillips raises prospects of a shutdown in refining activity. The potential upshot for the country: a loss of as much as 500,000 barrels a day in exports — the upper end of the estimated impact of renewed sanctions on Iran, according to energy economist Philip Verleger.
“The second situation would play out if the US halts exports to Venezuela of a product called diluent, which allows the thick oil to be transported,” the report said. A move like that — which could happen, based on comments from US Vice President Mike Pence calling the snap election a “sham” — would put half or more of the country’s remaining production in danger.
