PrintOil trouble from Venezuela
Oil hit a record—high $58 a barrel this morning in Europe. This time the market talk is not about refinery capacity (bad as we know that is) but about weakened production.
The producer the market's looking at is Venezuela. Its biggest refinery shut down last week on an electrical outage, and won't be back up for a week. Bloomberg reports that the shutdown at the huge Amuay refinery at Venezuela's Paraguana complex will take 760,000 barrels of oil a day off the market, out of Venezuela's total daily output of 2.5 million barrels. The U.S. buys 60% of that, so along with the Texas City BP refinery explosion that killed 14 people a week earlier, we in the U.S. are going to feel it.
These aren't even terrorist disruptions, but apparently ordinary ones. Yet Investor's Business Daily this morning ranked that Venezuela shutdown higher in news importance that even the Pope's death on its front page top ten list of stories this morning.
It may just have been a normal breakdown. But there are two questions to ask regarding why that Venezuelan plant was shut down. Has President Hugo Chavez robbed his national oil company so badly that it no longer has the capacity to maintain itself?
In the past, profits from the state oil company were reinvested in the company's infrastructure which enabled it to produce effectively, profit from higher oil prices, and raise production when needed to meet world demand. Now, it's become Hugo Chavez's cash cow to pay off his political cronies, finance Cuba's Fidel Castro, and buy votes through his "social programs." As a result, there's a tremendous stress on its operations and blogger Daniel Duquenal notes that Chavez is getting fearful of opening the oil company's books.
It may be even worse than that. Details are sketchy, but right now in Caracas, a pro—Chavez oil—workers' union is claiming the electrical outage was sabotage by anti—Chavista forces. Back in 2002—2003, Chavez fired 18,000 skilled oil workers and installed ignorant party hacks to take control of the oil company. Production has never been the same since and many oil workers are bitter, although most have since found jobs developing other countries' oil industries. (Texas and Alberta are full of them.)
In light of Chavez's on—and—off threats to cut off America's oil, one wonders if it might have actually been someone in the pro—Chavez union who did it.
We probably will never know. That the union made this claim and the market responded as it did just goes to show how unstable Venezuela's oil production is. Hugo Chavez's threats and mismanagement are what's driving prices to record highs at the pump. And we need to start boldly thinking about alternative energy suppliers.
A.M. Mora y Leon 04 04 05
