Is This Now the Biggest Oil Collapse in History?

Venezuela submitted a staggering figure.

By Nick Cunningham, Oilprice.com:

Venezuela’s oil production plunged to new lows in December, surprising even some of the most pessimistic forecasts.

According OPEC’s secondary sources data — provided by independent groups — Venezuela’s oil production fell by another 82,000 barrels per day (bpd) in December, taking output down to 1.745 million barrels per day (mb/d). That is certainly a bad result, but not drastically different from the pace of declines from the months before.

However, data that came directly from the Venezuelan government says that the country’s output plunged by a massive 216,000 bpd in December, dropping to 1.621 mb/d. It’s a staggering figure, and points to a more serious collapse.

OPEC provides those two sources of data — secondary sources and direct communication — in its monthly reports, and sometimes the data directly from the country can be overstated or understated, which can be the result of differing data collection practices, but also sometimes depends on some political motivations.

At times, Venezuela has submitted inflated numbers relative to the secondary figures, perhaps to obscure the state of decline.

In this context, the fact that Venezuela itself says that its production declined by such an enormous number is notable. The reason for the sharp drop off is unknown. There are endless reasons that would explain plunging output — debt, no cash to invest or even maintain production, crumbling infrastructure, a worker exodus — so the figures could very well be accurate. The December numbers could also be a one-off exaggeration, maybe to downplay the expected forthcoming declines this year.

Either way, Venezuela’s production losses are serious and worsening. Over the course of 2017, Venezuela’s oil production fell by 649,000 bpd, a loss of 29 percent. Those losses offset around two-thirds of the gains that came from the U.S. over the same timeframe. The WSJ points out that it was probably the worst loss of oil production in a single year in recent history — Russia’s production fell by 23 percent after the collapse of the Soviet Union and Iraq lost roughly the same percentage after the U.S. invasion in 2003. There aren’t other examples of such a massive erosion of oil production in such a short period of time.

The Venezuelan crisis adds some fuel to the fears from within OPEC that their production cuts are biting faster than expected, which could make the inventory drawdowns overshoot at some point.

The sudden tightening also raises fears that OPEC is handing over too much room for rival producers, i.e., U.S. shale. OPEC admitted this scenario is already starting to play out — in its monthly report, OPEC revised up its forecast for non-OPEC supply this year to 1.15 mb/d, an increase of 0.16 mb/d from last month’s report. The reason: “higher growth expectations for the U.S. and Canada,” OPEC said.

What is remarkable is that the feeling that the oil market is tightening too much, too fast comes less than two months after OPEC decided to extend its production cuts for another year.

Now, OPEC’s monitoring committee is expected to meet in just a few days in Oman, and oil market watchers are paying more attention to this gathering than they otherwise would because some small cracks in OPEC’s resolve are starting to show. A growing number of investment banks are starting to predict that OPEC will abandon the cuts one way or another, whether through cheating or via some official exit strategy agreed to before the end of the year.

“There is an unintended consequence from this higher price,” said Ed Morse, head of commodities research at Citigroup Inc., according to Bloomberg. “OPEC are fearful of not only the shale response, but of deep water and of oil sands from Canada.”

Morse argues that OPEC will likely sit tight for the time being, citing more work needed on bringing inventories back to the five-year average. Indeed, several oil ministers from OPEC member countries said as much in the past week. That message will likely be repeated after the upcoming meeting in Oman in a few days’ time.

But Morse of Citi argues that at the June meeting, the group may decide to start gradually ramping up production over the summer. By Nick Cunningham, Oilprice.com

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  29 comments for “Is This Now the Biggest Oil Collapse in History?

  1. Jan 18, 2018 at 11:13 pm

    Based on this writing then is it safe to assume that if OPEC stays put then you see the price going up but if OPEC ramps up production then you see it moving in the opposite direction?

  2. Paulo
    Jan 18, 2018 at 11:49 pm

    This collapse story will be good for other producers as oil prices might actually stabilize (for awhile) going forward.

    People look at Venezuala, point, and scream, “See, Socialism”. In reality the demise of Venezuala is based on plain old corruption and ineptness. This is a good lesson for everyone, and one KSA is trying to head off before their own decline. In good times, pay down debt and save some money. In fact, a moderately Socialist country like oil producing Norway now has a 1 Trillion+ dollar ‘oil heritage fund’ to help the transition when oil runs out for them. In contrast, Alberta (Canada) managed to squirrel away just 16 billion as of 2015. With the recent collapse of oil prices Alberta is basically broke. For the last 8 years free-enterprise Alberta has run a budget deficit, long before the recent oil price collapse.

    Venezuala is a warning for every country and household. In times of plenty, debt has to be retired and savings/investments made. Nothing goes up forever, right?

    I wonder if it is possible to find the billions funneled out of Venezuala and into the private offshore accounts of the connected.

    In 2018 the price of regular gas skyrocketed to $.10/litre in Venezuala. In my country, (Canada), I remember paying last week $1.249/litre and we are currently producing 3X what Venezuala produces.

    I wonder who will be ‘coming to the rescue’ of Venezuala and who ultimately will control their oil? It looks like it will be China.

    • AG
      Jan 19, 2018 at 12:26 am

      What’s interesting about China maybe helping out is that Venezuela has been exporting over twice as much to the U.S. than to China (35% v. 14%), mostly oil and its byproducts. And Venezuela has even been asking Cuba for help, when it was only 4% of Venezuela’s export market. The U.S. is their #1 export partner by far.

      I wonder, if they asked, if the U.S. wouldn’t help out, as opposed to us risking putting oil platforms along both our coasts, for instance. And New Orleans is just 1/4th distance to ship to than China.

      • Ensign Nemo
        Jan 19, 2018 at 4:55 am

        Venezuela has consistently nationalized and cannibalized its oil industry. The latest act: “In April 2017, a controversial Venezuelan Supreme Court ruling granted Maduro executive powers over PDVSA, which allow him [to] act autonomously in selling shares or make international agreements of the oil company. Some countries oppose this great upsurge in Maduro’s personal power. Among them, the United States has announced multiple sanctions against Venezuelan Oil, although such legislation has been mainly for political statement with no significant economic impact.”

        https://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_industry

        As long as the President of the country has complete *personal* control over the *only* oil company in the country, the USA has no reason to send him more money to steal.

        If Trump nationalized all of the oil companies in the US and usurped authority to issue shares, etc., would you want to buy any shares in American Oil, Inc.?

    • I M
      Jan 19, 2018 at 7:47 am

      Paulo said: “People look at Venezuala, point, and scream, “See, Socialism”. In reality the demise of Venezuala is based on plain old corruption and ineptness. “

      Not really. Corruption and ineptness are ubiquitous in government. The real failure resulted from a centrally planned economy and the foolish belief that government policy can override innate human behavior and market forces. The heavy, violent hand Maduro is utilizing against dissenters and his stubborn adherence to price controls are testament to the folly and failure of his (and Chavez’s) policies, and Socialism in general.

      Capitalism is not perfect and suffers from many failings, but at least it doesn’t run counter to innate human behavior and desires.

      • Adam
        Jan 19, 2018 at 8:09 am

        Wrong again.

        The remaining Venezuelan oil is of extremely low quality similar to Canadian tar sands. This oil doesn’t support an economy the way high quality crude oil used to.

        • I M
          Jan 20, 2018 at 7:34 am

          Wrong.

          Heavy, Sour grades common in Venezuela are blended with Lighter, Sweeter grades to create an optimal grade for export. Always have been. Venezuela has plenty of L/S in the ground to use for blending but the Chavez/Maduro Socialist Utopian dream that has cannibalized their oil industry means they don’t have the money, technology or knowledge to extract it, nor do they have the equipment to pre-refine it, and no one will dare loan them the money or equipment lest it be seized by the socialists. Thus, they are forced to import L/S for blend stock.

          Venezuela was importing L/S from Algeria but shifted to imports from US shale now that the US can export, is closer, and transport prices are favorable. In fact, US shale produces light/sweet in abundance but Gulf Coast refiners prefer medium and heavy grades like what comes from Venezuela, Mexico, the Gulf, and Arab states. The ratio and price of necessary blend stock is what determines profitability for H/S grades as are found in Venezuela.

          https://www.nytimes.com/2016/09/21/world/americas/venezuela-oil-economy.html

          Unfortunately the Chavez/Maduro socialist plan not only destroyed the economy and cannibalized the oil industry, they follishly entered into poorly considered loans with the Chinese and Russians. These loans allow for payment in oil rather than a rapidly collapsing currency. As such, roughly 2/3 of Venezuelan oil goes to paying off these dubious loans rather than providing necessary national income.

          Some on this forum have attempted to blame corruption and ineptitude rather than the folly of socialism for the collapse in Venezuela, yet they ignore that it was socialist planning that led to Maduro seizing oil assets as well as other means of industry and production, not corruption or incompetence.

      • Nicko2
        Jan 19, 2018 at 8:12 am

        More accurately, social democracies are the most successful countries (Denmark, Finland, Netherlands, Canada, Sweden, Norway, Ireland). Nothing wrong with big government providing socialized medicine, education, or even a universal basic income… so long as corruption and income inequality is kept in check. Unfortunately, the US now has one of the largest divide between rich and poor, on par with a developing economy.

        • I M
          Jan 19, 2018 at 9:35 am

          social democracies are the most successful countries

          This depends upon one’s definition of “successful”. Clearly, we differ.

          Nothing wrong with big government providing socialized medicine, education, or even a universal basic income… so long as corruption and income inequality is kept in check.

          Everything is wrong with it. All of the things you stated strive to make everyone equal in every way, or more accurately, force everyone to the mean. Well, many of us are not satisifed with mediocrity and we strive for more, therefore we expect to receive more and not be penalized for our efforts and successes. I know many public school teachers including several outstanding ones, many average ones, and a few horrible ones. Do you know the one thing they all have in common? They all receive the same compensation based soley upon years of service, not student/teacher achievement. Does that make sense?

          As for socialized medicine it comes down to access to specialized treatments and doctors. In this regard the US is in the top tier as many new physicians opt into lucrative specialties vs general medicine (this is documented). Socialized medicine gives easy access to frontline physicians but one usually waits for critical secondary services and treatments because specialist access is rationed. Yes, in the US some treatments are cost prohibitive for some but everyone can receive at least the ‘average’ treatment. I know this to be a fact. This is one place where the government could actually help, such as paying off student loans for doctors that opt to do their residency in the VA or in free clinics and then subsidizing their private practice if they open a free clinics.

          A universal basic income is a fools errand and is exactly what I have highlighted as running counter to human behavior. Simply put, why would one exert themselves any further than the minimum if they get paid either way? It’s nonsense.

          The US is not a Capitalist country. It is a Crony-Capitalist economy at best, propped up by a government infested with corruption, nepotism, back-room politics and lifetime appointments.

        • Hkan
          Jan 19, 2018 at 11:41 am

          True!

        • RagnarD
          Jan 19, 2018 at 1:38 pm

          What about the social democracies of Africa and South America? Why are you leaving them out? Oh, you just want to include the small, homogeneous white nations of northern Europe?

          Did you know the population of Norway is 5.3 million? How about having them import the % demographics of the USA, and then have a go at their social democracy?

          Anyway, how well do the economics of these social paradises work when the ratio of workers to retirees moves from 15 to 1 to 2 to 1?

      • Paulo
        Jan 19, 2018 at 8:19 am

        No offense, I am a big believer in a free economy, but I really had a chuckle at the last sentence and have to respectfully disagree. “Capitalism is not perfect and suffers from many failings, but at least it doesn’t run counter to innate human behavior and desires.”.

        Last night I started to read, Black Edge…. ‘Inside information, dirty money, and the quest to bring down the most wanted man on Wall Street’. It is a riveting read about hedge funds, their corrupt nature, and the prosecution of inside traders…ironically, the same folks getting a free pass on the new Tax Plan’.

        Human Nature is human nature, and unfortunately corruption and criminals are found in every governing structure. Of course I write this with a belief that Unions representing workers is a good thing, single payer medical is good, and that Govt., by definition, is not always bad when involved in planning and funding for ‘the Commons’. Maybe a mix and match blend is the best soution for governing, as opposed to just privatizing profits and socializing losses. :-)

        Chavez and Maduro are certainly evil, but they wouldn’t have existed and come to power without the previous extreme wealth disparity of Venezuala under the ruling kleptocracy.

        Two quotes: “In the mid 1970s, the management of national assets deteriorated significantly, as the country experienced a sudden oil windfall that tripled fiscal income. The ordinary men in charge of the government were exposed to extraordinary temptations.”

        and

        “Up until then, graft had been restricted to the ruling elites, but now many Venezuelans started to participate in the abuse and misuse of public funds. By 1980, the country had fallen into debt to the international banks, victim of the so-called “Dutch disease” that affects Third World petrostates that depend almost solely on hydrocarbon exports for national income.”

        https://www.cato.org/publications/commentary/corruption-democracy-venezuela

        A good lesson for us all, especially in today’s angry climate.

        regards

        This happened long before Chavez and Maduro.

        • I M
          Jan 19, 2018 at 9:45 am

          You should read The Wealth of Nations cover to cover and strive to understand what Adam Smith put forth rather than gripping tails of the revolving door of corruption on and between Wall Street and DC.

        • I M
          Jan 20, 2018 at 8:24 am

          If you want to accelerate the collapse of an already corrupt state, just add socialism to the mix and watch it go down with blinding rapidity.

  3. 2banana
    Jan 19, 2018 at 2:28 am

    Every time an article brings up the evils and destruction of Socialism, the fools say “Look at Norway! Socialism can work!”

    Norway is a tiny (population), white, homogeneous, Christian country, sitting on massive oil with a hard work ethic culture.

    Literally, any economic system would work there.

    It is hardly a “control” sample to compare to or to use as an example.

    • I M
      Jan 19, 2018 at 9:48 am

      Norway is a tiny (population), white, homogeneous, Christian country, sitting on massive oil with a hard work ethic culture.

      This needed highlighting. I hope you don’t mind.

      • Paulo
        Jan 19, 2018 at 3:55 pm

        Not at all, IM. I love to work and enjoy the rewards of a good days work well done.

        As for single payer, no complaints in our house. When my wife was 13 she developed type 1 Diabetes. She is now 58 and in very good health. She just got back from swimming. Our insurance covers her insulin, test strips, specialist appointements, insulin pump, etc. Our co-pays for pharma is waived after 2 weeks into every new year. If this were not the case we would be forced to pay a minimum of 1,000/month, and $7,000 for just the pump. My US friends have told me they would pay between $3-$4,000/month for diabetic services. Of course insulin was discovered in Canada and the rights of production were donated, gratis. hmmmm.

        I am 62, have had cancer once, broken legs, fingers, knees etc., including several surgeries for the above. (active lifestyle) I am currently in excellent health, cancer free, and take absolutely no medications. I have yet to receive a bill for rendered services.

        I wonder why Canadians live approx. 2 years longer than US citizens? It couldn’t have anything to do with the medical system, could it?

        It’s nice to know that if I were to fall off my roof and split my head open, (what happened to friend of mine), and the ambulance was called for a hospital run and a lengthy hospital stay (including neck surgery…fusion …friend again) there would be no bill. We look after each other here.

        • I M
          Jan 20, 2018 at 8:15 am

          Paulo said: “I wonder why Canadians live approx. 2 years longer than US citizens? It couldn’t have anything to do with the medical system, could it?”

          I’m glad you brought up this tired canard. The slightly lower life expectancy of Americans vs Canadians, Euro’s, etc. has NOTHING to do with access to socialized medical care and everything to do with lifestyle choices.

          Americans are fat, lazy and abuse their bodies with readily available fast food on a regular basis. Add to this smoking, drinking, high stress work environments, etc. and this is a recipe for an early grave. Americans excel at many things, including rates of heart disease, diabetes and obesity as compared to the rest of the world. Some might argue that easier access to a frontline socialist healthcare system would alert people to these danger signs and encourage them to seek treatment. That’s folly. Americans are bombarded relentlessly with endless teevee commercials and various media about the dangers of these choices. If an obese/smoker/drinker doesn’t realize they are killing themselves and rethink their lifestyle, then what makes you think a doctor will get them to turn their lives around? It won’t.

          Thanks for your detailed medical history, but I really don’t care about your one-off annecdote among hundreds of millions of others. In countries like yours where 55% of the population adores their socialized medicine there’s another 45% that don’t care for it because they suffered as a result of it. I know and work with many Canadians, including one that brought his father suffering from heart failure to the US for treatment and surgery because he needed bypasses and would be on a wait list for months. His father flew to the US on Saturday, saw a US cardiologist on Monday, testing and imaging on Tuesday, received a call Tuesday evening from the Cardiologist, and underwent emergency surgery on Thursday morning. So there, I have my own one-off annecdote as well. Was the diagnosis and surgery free? No. But according to his US cardiologist it was crucial that the surgery be completed ASAP, so perhaps it was potentially life-saving. What value do you assign to life-saving?

          As a bonus, I could relate to you details about a dirt-poor individual that received life saving cancer treatments all while being unemployed for years and subsisting on Medicaid, state sponsored benefits and leaching off family generosity. So you see, we look after each other here too in the US.

    • KDMaza
      Jan 19, 2018 at 1:42 pm

      The population of Norway is so small, that with their significant oil revenue, they can make any system work. Their population is around 5.3 million while New York City by itself is around 8.6 million.

    • Binky
      Jan 19, 2018 at 2:39 pm

      Misrepresents Norway greatly. But this is the white supremacy fantasy in a nutshell. Last visit to Norway saw refugees from all over the world including black Muslims working hard and living like Norwegians down to skis and paying more than half of their wages in taxes to support good life for all.

      What I see in America is white people making excuses for themselves and their privilege while indulging themselves in gross excess-opiates, meth, weed, booze, cocaine-while pointing at people of color as the problem. Eddie Haskell is President and 30 percent of the country is Lumpy Rutherford, following along with a profligate delinquent scammer. Drinking thinking in 12 step terms. We need that gone and we need to embrace the world in a more “Christian” (red words in the Bible) way.

  4. Jan 19, 2018 at 10:29 am

    May be that demand is dropping as well, the tepid economic recovery may be biting. Now to coincide with the Fed engineered cutoff of low high yield engineered US Shale supply will fall in concert with demand. Can you say deflationary vortex? sure you can

  5. mvojy
    Jan 19, 2018 at 10:37 am

    Time to get off of reliance on oil. Tesla could make a nice version of the Flinstone’s car with an open bottom for occupants to pedal their feet for power. Self-driving cars are a long way off. At least this way is environmentally friendly, saves us money, cuts dependence and gives people exercise which cuts healthcare costs.

  6. Gershon
    Jan 19, 2018 at 4:19 pm

    Venezuelans voted themselves benefits someone else would have to pay for – the essence of socialism. Now the bill has come due.

    They made their bed, now let them lie in it.

  7. Obosrantos
    Jan 19, 2018 at 5:30 pm

    Russia eased on debt from Venezuela …

    https://www.nytimes.com/2017/11/08/business/energy-environment/russia-venezuela-debt.html

    And that’s just “official” part. Who knows what’s going on behind the scenes ….

    • I M
      Jan 21, 2018 at 9:25 am

      From the article link: This is the third time since last year that Russia has come to Venezuela’s aid when Caracas was in deep financial trouble. And its lending to the Venezuelans has been part of a worldwide strategy to use the Russian national oil company Rosneft to help achieve foreign policy objectives.
      ……Rosneft is negotiating to swap the [Russian] interest in Citgo for oil fields in Venezuela.

      When the Russians negotiate to take control of Venezuelan oil fields they are “throwing in a life-preserver” to poor Venezuelans. At least that’s how it’s portrayed by the New York Times and sundry leftist media. But, if Exxon or any US company did the same they would be Capitalist pigs colonizing a weak neighbor state with their western white privilege.

      In reality, Russia sees the writing on the wall and they want to secure their interests with physical assets before the currency and nation collapse.

  8. michael Engel
    Jan 19, 2018 at 7:38 pm

    Canadian collapse of $WTIC – WCS ==> is still osc. around $25.
    It’s in a trading range and nothing have changed.
    Between the two, there is gravity. That will not allow the WTI to rise at all, indicating a peak, or rise just a little higher. Brent rise will also will obey the forces gravity.
    If $WTIC – WCS have found a bottom, $WTIC might rise in direction of $70.
    But this chart have an eerie look of $WTIC in the 2014 collapse.
    If true, a new bottom will be established.
    With lower oil, Alberta in real troubles, especially if 1 to 3 more planned pipelines will flood more oil into the market.
    That will punch a hole in Alberta + Canada, just like Venezuela punching
    a hole in Chinese debt and assets.

  9. Gandalf
    Jan 19, 2018 at 10:30 pm

    So far there’s only been a brief mention of the sanctions imposed by the US against Venezuela last year in one comment, and nothing at all about US sanctions in the original article.
    In Googling this topic, there were articles earlier this month where Venezuela and Russia were both planning on using cryptocurrencies to evade sanctions, so the sanctions appear to have hurt.
    Cryptocurrencies have since become wildly erratic, mostly in a downward trend, so if Venezuela did start doing a petro cryptocurrency, that’s probably hurt more than helped.

    More importantly, the various hurricanes in the Gulf of Mexico last fall, especially Harvey, wrecked havoc on oil refineries in Louisiana and Texas, several of which are the biggest U.S. importers of the heavy Venezuelan crude. No mention in the article about that either.

    I think US sanctions and Harvey are all parts of the answer as to why oil production dropped so drastically last December in Venezuela, on top of all their other ongoing problems. With the US being their biggest market, those factors had to have an effect.

    • Jan 20, 2018 at 10:49 am

      Concerning Venezuelan crude oil imports to the US: They peaked in 1998 at 1.6 million barrels per day and have been declining ever since. By July 2017, before the hurricanes, they were down to 677,000 barrels per day. They dropped further in Aug, Sep, and Oct (to 510,000). So most of the plunge in imports happened in the prior two decades. The hurricanes added to the decline only at the tail-end.

      https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrimusve2&f=m

      There is plenty of demand for Venezuelan oil around the world. It’s not like Venezuela cannot sell the oil it produces. It’s not like Venezuela sits on this massive storage tank of oil for which there is suddenly no demand because of the sanctions or whatever. The problem is that Venezuela cannot produce more oil. As the article said, PRODUCTION has plunged, not demand. That’s a well-known Venezuelan problem dating back many, many years.

    • I M
      Jan 21, 2018 at 9:28 am

      One doesn’t need crypto currencies for deals in which equipment is exchanged for oil, future oil, or oil rights.

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