In a desperate bid to survive its economic meltdown, Venezuela is lobbying other OPEC members to agree to steeper oil production cuts, a move that would likely lead to higher oil prices.
Venezuelan officials have reached out to their counterparts in Iran, Russia and Saudi Arabia to press them on more collective action, according to Argus Media. If there was enough interest, the next step would be an “extraordinary meeting,” which would weigh the option of cutting deeper.
The rumors about deeper OPEC cuts have been floating around since June, when oil prices collapsed into the low-$40s. The markets have grown deeply pessimistic about the health of the oil market, and doubt the OPEC cuts will balance the market by the end of the compliance period in March 2018.
But the behind-the-scenes effort from Venezuelan officials is notable, if only because the South American OPEC members was one of the earliest and most aggressive supporters of the original deal to reduce output. In 2016, for months the more powerful members of the cartel rebuffed Venezuelan pleas, but in the end they agreed to reductions in November after oil prices continued to wallow below $50 per barrel.
The deal pushed prices above $50 for a period of time, but after six months of restraint, the market is back in sub-$50 territory.
However, the urgency for higher prices is more acute now for Venezuela. Protests have spread nationwide in the South American nation as the economy contracts at a torrid rate. Violence is becoming more widespread, and the nation is suffering from political gridlock and economic and social disaster.
Over the weekend, the opposition organized an informal referendum, which attracted more than 7 million votes, to oppose anti-democratic moves by the government. The vote demonstrated widespread anger and opposition towards the government’s upcoming effort to consolidate power in a July 30 vote to rewrite the constitution, a move that would weaken competing institutions like the National Assembly. The referendum opposing the July 30 vote was not recognized by the government, but it was a show of force for the opposition.
There is no way out of the downward economic spiral for Venezuela in the short run without significantly higher oil prices.
WTI has roller-coastered higher since last week’s ‘bullish’ API report and rose today for the 6th of the last 7 days (on Saudi cut hype). While many eyes are on record high shale production, the recent trend in inventory draws remains key but API upset that dream briefly as Crude saw an unexpected build (+1.628mm vs -3.5mm exp). Gasoline and Distillates saw major draws (much bigger than expected) and Cushing saw its first build in 8 weeks.
Crude +1.628mm (-3.5mm exp)
Gasoline -5.448mm (-1.3mm exp)
Big draws in crude, and Gasoline (and at Cushing) in the last few weeks have set the scene for some normalization but tonight’s API data shows an awkward build in crude stockpiles (and at Cushing) even though Gasoline and Distillates saw big draws…