HOUSTON – For weeks, two competing market narratives have kept U.S. oil prices pinned just below $50 a barrel, with one side arguing big crude production outages could soon correct a global oversupply while others point to big economic risks.
Some traders believe Brexit – Britain’s upcoming vote to exit or remain in the European Union – could keep energy prices down because it would strengthen the dollar against the basket of other currencies. Crude, which is traded in dollars, gets more expensive when the dollar strengthens. Others say oil supplies have come down enough to spark another rally.
But one country at the center of both sides of the debate: Venezuela. The country’s economic instability has crippled some of its crude production. A new report by Barclays says if the rolling power blackouts that took out 120,000 barrels a day of Venezuela’s production in May persist, the country could lose half a million barrels a day by the end of the year.
“It definitely tightens the balance and raises the call on shale oil,” said Michael Cohen, an analyst at Barclays. “During the peak summer months, people will see how much inventory has been drawn down.”
OPEC’s independent sources say Venezuela’s oil production fell 120,000 barrels a day last month amid outages, and Barclays expects the country’s output to drop at least 300,000 barrels a day, ending the year around 2.1 million barrels a day. If production falls by as much as 500,000 barrels a day, its overall output could drop to 1.7 million barrels a day.
Half a million barrels a day is about half the size of the global glut before wildfires in Canada and militant attacks in Nigeria kept some producers from pumping crude.
China, which has invested billions in Venezuela, isn’t likely to come to Venezuela’s aid given political and economic uncertainties at the moment, Barclays noted. As long as the shortage of electricity persists in Venezuela, the British bank said, production will likely keep dropping.