The oil executives strike in Venezuela is beginning to bite on the United States mainland with conditions ripe for a further spike in crude oil prices to levels not seen since the oil shock of 1973. Scoop Editor Alastair Thompson reports.
Overnight New York NYMEX crude futures rose to new 2 year highs of over USD33.21 a barrel, just short of the September 2000 U.S. spot price peak of USD33.47 a barrel.
The rises were put down by analysts to a combination of fears over Iraq and the latest U.S. crude stock figures published by the U.S. Department of Energy’s Energy Information Administration.
Of the two factors the second is likely to be the most telling in the long term as it shows extremely clearly the impact that the seven week Venezuelan oil executives strike is having on U.S. inventories.
According to the latest U.S. Department of Energy Weekly Petroleum Data report (DOE Report ) U.S. crude oil stocks have in all likelihood now breached the Lower Operational Inventory level of 270 million barrels.
In the latest report issued early this morning NZT - and indicating the situation as of last Friday (Jan 10th) – U.S. crude stocks fell a further 6 million barrels to 272 million.
Over the past week draw-downs on these reserves have been averaging close to one million barrels a day, meaning that the 270 million barrel Operational Inventory level has almost certainly been breached by now.
Significantly the latest DOE figures also show why inventory levels have been falling.
PDF Graph - US Oil Imports Take A Dive
The .PDF graph linked above (you will need Adobe Acrobat to read this) shows US crude imports looks particularly ill lately thanks to the drop off in Venezuelan imports. The four week average import level has fallen to 8.4 million barrels a day its lowest level in three years and well off the two year average level of 9.2 million barrels a day.
According to the DOE report some Venezuelan oil is still getting through at present. Though this situation is not likely to continue for long with the latest news in the oil executives strike being that tanker insurers are no longer willing to allow tankers to dock in Venezuela.
(Note: For comprehensive coverage of the events in Venzuela that led to this situation see... Narconews.com's Venezuela Papers)
As Venezeula has in recent years provided around 13% of US Oil imports these figures, a one million barrel a day shortfall in imports, are broadly in line with the impact that the oil executives strike should be expected to have.
Furthermore the fact that the graph above indicates that the impact began to bite in the last three weeks is probably an indication of the lag between production in Venezuela and arrival of tankers in the mainland United States.
To put some of these numbers further in perspective the actual level in the last DOE report 272 million barrels of crude inventories is just 37 million barrels above the lowest level of inventories experienced during the oil crisis of the 1970s when inventories fell to 235 million barrels.
At the present rate of draw-down in inventories this level will be reached in mid to late February.
The most recent peak in U.S. Stocks was 330 million barrels in March 20O2.
Interestingly the last time stocks fell to similar levels to those they are at now was in late 2000 when crude prices went way over $30 barrel for a couple of months.
However the situation at present is very different from that in Sept-November 2000 during the last price spike.
Then crisis meetings were called by OPEC and U.S. stocks were replenished quickly. Prices had fallen to $22 a barrel by December.
This time there is insufficient spare capacity available to boost U.S. stocks rapidly, except in Saudi Arabia. At its last meeting OPEC agreed to increase production by 1.5 million barrels a day to compensate for the shortage in production caused by the Venezuelan situation.
There is considerable skepticism in the market that this move will make any difference however. Some analysts point out that the increases merely legitimise existing over-quota production by OPEC nations.
Others note that included in the 1.5 million barrel increase is a 173,000 barrel increase in Venezuelan production. Meanwhile even if the 1.5 million barrels a day were available immediately they would not replace the estimated 2 million barrel drop in production from Venezuela.
Then there is - in any event - a time lag between any ratcheting up in OPEC production and its arrival in the U.S. As a result it seems likely that for the next two months at least U.S. stocks will continue to contract.
And when you factor in the possibility of two million barrels a day being taken out of commission by any war in Iraq (most of which is presently imported by the U.S.), it is fairly obvious why the markets are so jittery.
Meanwhile the U.S. administration has stated several times in recent weeks that it is not contemplating allowing U.S. refiners to dip into the 600 million barrel Strategic Petroleum Reserve (which constitutes two months of U.S. imports).
All this begs the question of how long it will take Venezuela to get back to full production, should the strike end tomorrow (which seems unlikely).
During the oil executives strike around 2000 workers in the Venezuelan state oil company have been sacked. The government of Hugo Chavez claims it has regained control of the company, but reinstating production is not a simple matter as many key parts of the production infrastructure have been sabotaged.
Thus the bottom line
is that nobody knows how long it will take to reinstate