The global oil market faces a sharp drop in supply in 2017 from Venezuela, traditionally a prominent exporter, as an acute political and economic crisis halts investments needed to squeeze more crude from wells, Columbia University said in a report released on Tuesday.
As the political opposition pushes for new elections to replace President Nicolas Maduro, Venezuela's economy has worsened, creating doubts about the ability of the Organization of the Petroleum Exporting Countries (OPEC) member to pay its external debt. Its largest industry, oil, is slowing down and showing signs of mismanagement.
"It is the underlying trend in Venezuelan crude production that constitutes the most important risk ahead for oil markets," said Luisa Palacios, senior managing director at Medley Global Advisors and author of the report.
Global oversupply of 1 million to 2 million barrels per day (bpd) since mid-2014 has caused the worst oil price crash in a generation. Prices have languished around $45 a barrel, though the market has started to rebalance as some exporters have reduced shipments due to lower prices. Venezuela's crude output in June declined to 2.36 million barrels per day (bpd), its lowest monthly level since a strike in 2002-2003, according to official figures reported to OPEC. In 2008, it was producing above 3.2 million bpd.
The oil ministry last week said output rebounded in July. But statistics on state-run Petróleos de Venezuela, S.A.'s crude exports and rig count showed a continued decline last month, and experts have said that the country was on track this year to suffer its steepest oil output drop since a strike in 2002-2003.
The Columbia report cited Venezuela's poor response to low crude prices compared with other oil exporting countries. "The way the country is adjusting to the oil price collapse is leaving its economy, society, and oil industry in much worse shape than its competitors in an oil market where the pool of investable resources has shrunk," Palacios said in the report.
A weak government and state institutions are disabling all possible avenues for economic policy and political change, she added.
So far, the country's National Electoral Council has indicated that any potential recall vote against Maduro, who is grappling with skyrocketing inflation and food shortages, would probably not be held until 2017. Recalling Maduro in 2016 would trigger fresh elections, but a delay until next year would allow him to be replaced by his vice president, who would serve the remainder of his term through early 2019.