“Inspired by Kiev, protesters in Caracas intensify street protests,” says UBS strategist Julius Walker.
Protestors and police continue to clash — and even members of the media have been attacked.
In many ways, what’s happening in Venezuela feels a lot like what’s happening in Ukraine.
Of course, there are more differences than similarities.
One important difference for investors: oil.
Walker discusses this in his new note:
Venezuela is the world’s 13th-largest oil producer. Venezuelan total oil output averaged 2.7 mb/d in 2013, of which 2.5 mb/d was crude and 0.2 mb/d NGLs, making it the world’s 13th-largest oil producer. Venezuela is thus a significant supplier of crude to world markets, including the US and China, with around 800 kb/d and 300 kb/d heading to those two countries respectively. It also has a sizeable downstream sector, supplying much of the Caribbean region and the US with refined petroleum products.
Any production outage would cause a significant price spike. Any production shut-ins as a result of political unrest would almost certainly result in sharp price spikes, and a total production shortfall would severely strain global oil markets. Even modest curbs to oil production would add to the 3 mb/d or so of crude production currently shut-in in Libya, Iran, South Sudan, Syria and elsewhere. IEA estimates that global effective spare production capacity was 3.15 mb/d at the end of January, with the majority of this (83%) held by Saudi Arabia.
A severe strain on global oil markets is the last thing the world needs.
“In addition, after years of underinvestment, due to significant shares of the national oil company PdVSA’s revenues being diverted for the regime’s political purposes, the country’s oil infrastructure is at best creaky,” Walker says. “This suggests even low-level unrest or sabotage could have a significant impact on output. Then again, political unrest would not necessarily result in oil production shut-ins, as much of the country’s oil infrastructure is far removed from urban centres.”
Hopefully things won’t escalate to that level.
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