Global oil inventories have started to decline and the supply/demand balance will soon tip into a deficit, if it hasn’t already. That will accelerate the drawdowns in crude oil stocks, and bring the market back into ‘balance,’ providing a lift to oil prices.
That, at least, is the working assumption. But there are a series of gigantic question marks out there – a handful of countries could upend the theory that the oil market is on a smooth trajectory towards balance.
1. Venezuela. Venezuela’s economy has been in freefall since oil prices collapsed in 2014. The situation has deteriorated rapidly more recently, however, with hundreds of thousands of people taking to the streets. While things could certainly drag on, the situation in Caracas definitely has the feel of some sort of final stage for the Maduro government. Oil production already dropped by nearly 10 percent last year, and will continue to fall this year. Depressingly, total collapse of Venezuelan society is possible, threatening 2 mb/d of oil production. At a minimum, output will continue on its downward path. On the other hand, Bloomberg Gadfly points out that Venezuela’s demand would also plunge in this meltdown scenario, offsetting the supply loss but creating another, if different, risk to the oil market.
This post was published at Zero Hedge on Apr 26, 2017.
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