March 26, 2018

SCARCITY AMID PLENTY: It is Venezuela’s crisis that is driving the oil price higher.

Prices have risen 30 per cent over the past nine months. Why? Are we seeing the beginning of a new upwave towards the $100 a barrel level last seen in 2014? Is there a looming shortage of oil caused by under investment? Is Opec back in control? Or do oil traders really think the US will now go to war with Iran?

The answer is much simpler. Opec’s production quota system has been largely adhered to, but that alone cannot account for a $15 rise in prices. The real change has been the sharp reduction in output in Venezuela as a result of its political and economic crisis.

The country’s oil production has fallen from more than 2.2m barrels a day two years ago to 1.54 mbd in February, with reliable reports of a further fall in March. At current levels, output is less than half what it was when Hugo Chávez became president in 1999.

Prices would be higher still, without frackers:

US total crude oil output has risen from an average of 9.3 mbd in 2017 to 10.3 mbd in February. The EIA projection for 2018 is an average of 10.7 mbd with another year of growth in 2019 to more than 11 mbd. This means production this year will the highest ever, outstripping the 1970 record.

American capitalism: Providing the plenty which socialists can only promise.

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