The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, along with other oil-related exchange traded products can be moved by geopolitical catalysts.
That scenario could be in store for oil traders amid increasing political volatility in Venezuela. Venezuela is an OPEC member and home to some of the world’s largest oil reserves.
“RBC Capital Markets’ Helima Croft says there’s a very high probability Venezuela’s state oil company will default and bring about a steep jump in crude prices,” reports CNBC. “According to Croft, it could be the catalyst to push oil prices to $70 to $80 a barrel by fall.”
Amid concerns that Venezuela’s recent election was no more than a sham that threatens the country’s ability to have any semblance of democracy, yields on some government debt there, including some issued by the state-controlled oil giant, have topped 100% and in some cases, 150%.
While the Organization of Petroleum Exporting Countries are skeptical that demand growth can put a dent into the ongoing supply glut, the oil cartel has made steps to cut down supply to bolster prices. OPEC has already promised to curb production by 1.2 million barrels per day between January this year and March 2018.
“The national oil company owes $3.5 billion due in October-November. They are unlikely to make those payments,” Croft added in the CNBC interview. “Venezuela has less than $10 billion now in reserves, and then have $5 billion in debt payments coming due this year. … We really do think a disorderly default is on the cards for Venezuela.”
Related: OPEC a Threat to Oil’s Rally
Venezuela is Latin America’s largest oil producer, but that production is continually sliding because of the government’s heavy hand in the oil business and its refusal over the years to make the necessary infrastructure investments to make oil production there more economical.
“Crude Oil Production in Venezuela decreased to 2156 BBL/D/1K in June from 2189 BBL/D/1K in May of 2017. Crude Oil Production in Venezuela averaged 2423.92 BBL/D/1K from 1973 until 2017, reaching an all time high of 3453 BBL/D/1K in December of 1997 and a record low of 594 BBL/D/1K in January of 2003,” according to Trading Economics.
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