Venezuela has the largest known oil reserves in the world but the death of its president, Hugo Chavez, who nationalized the oil industry in 2007 has had little impact on the market.
Hours after Chavez died on Tuesday U.S. crude oil futures closed at $90.82 a barrel—just 70 cents higher than the previous day and below the intraday high. They were trading just over $91 a barrel by midmorning Thursday.
Risa Grais-Targow, Latin American analyst at The Eurasia Group, tells The Daily Ticker she doesn’t expect the death of Chavez will have much reaction in the oil market, until more is known about the transition to a new president.
In the meantime, she says oil production in Venezuela, a member of OPEC, has stabilized at 2.5 million barrels a day—well below the peak of 3.5 million barrels in 1998, the year before Chavez became president.
Venezuela’s vice president and Chavez’s hand-picked successor Nicolas Maduro is favored to win the next presidential election which will take place sometime in April or May, says Grais-Targow. The constitution says the election should be held within 30 days but she says, “It’s unclear how closely the government will interpret that. “
Grais-Targow expects Maduro, if elected, will continue the policies of Hugo Chavez. That implies no change for the country’s oil industry, which could benefit from change oil in industry.
"All of Venezuela’s potential new production is in the Orinico heavy oil belt where the state run oil company PDVSA has a 60% share in all the projects,” Grais Targow says.
She says the national oil company has failed to meet its investment requirements there because Chavez had diverted those fund to finance social programs which has frustrated PDVSA’s partners.
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