Loss of Venezuelan exports could lift oil prices $13/barrel: GAO

Washington (Platts)--14Jun2006

A six-month loss of Venezuelan exports to the US market could cause a
$9-13/barrel increase in crude oil prices and lead to a reduction of up to
$23 billion in US Gross Domestic Product, according to the US General
Accountability Office.
"A Venezuelan oil embargo against the US would increase consumer prices
for petroleum products in the short term because US oil refiners would face
higher costs getting replacement supplies," the GAO said in a draft of a
report it is preparing on issues related to Venezuelan oil production,
obtained Wednesday by Platts.
Some US refiners designed to handle Venezuelan heavy sour crude would
lose some of their effective capacity if they had to use lighter replacement
oil that most likely would be available, GAO said.
A shutdown of Venezuela's five wholly owned Citgo refineries in the US
would also increase gasoline and other product prices until closed refineries
were reopened or new sources were brought online, GAO said. The impacts
would be most severe in the US and Venezuela, although greater demand by US
companies to buy petroleum products from other countries could cause price
increases in those countries, GAO added.
The agency, the investigative arm of Congress, pointed out that these
disruptions would "seriously hurt" the heavily oil-dependent Venezuelan
economy, putting pressure on Caracas to resume output.
Venezuela is the world's eighth largest oil exporter, and supplies about
1.5 million b/d, or 11% of current US crude oil and petroleum product imports.
In the event of a shut-off by Venezuela, the US could attempt to get oil
producing nations to increase their production to the extent possible or could
release oil from the US Strategic Petroleum Reserve, GAO said.
"While these options can mitigate short-term oil disruptions, long-term
reductions in Venezuela's oil production and exports are a concern for US
energy security, especially in light of the current tight supply and demand
conditions in the world oil market," the agency said.
A sudden drop in Venezuelan oil from the world market, for example from a
strike, would resulted in a "marked spike" in world oil prices and a drop in
the growth rate of the US economy as measured by the GDP, GAO said. But
because Venezuela's economy is so dependent on oil, Caracas would likely
attempt to restore output as quickly as possible to avoid large losses of
export revenue, GAO said.
GAO also noted that while Venezuelan oil production has fallen since
2001, when a widespread labor strike crippled the industry and completely
halted output for nearly two months, exports of both crude and refined
products to the US have been "relatively stable" except during the strike.
The agency said that although there were differences of opinion and
"uncertainty about the accuracy of available production data" from Venezuela,
data indicated a "significant decline" in production, with net foreign direct
investment declining from $3.5 billion in 2001 to almost zero in 2002 before
recovering to about $1.9 billion in 2004.
The Venezuelan government announced plans in 2005 to expand its oil
production by 2012 to 5.8 million b/d, GAO noted. While technically
feasible, the goal probably is not realistic since Venezuelan officials had
yet to sign investment and the country has been unable to maintain its level
of oil production in recent years.
--Cathy Landry, cathy_landry@platts.com

 

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