Crude Oil Prices Up Despite Production Cuts Eyed: Part of the Economics of the Petro-politics of Venezuela is a widespread belief that the reason oil prices are up in the world market is that there has been a shortage of oil due to a decline in Venezuelan oil production. One of the large problem areas is the presence of “underground” oil fields, but this problem will not be solved by this lack of drilling activity.
There has been a huge drop in crude oil production from the Middle East and OPEC nations over the past several years, and many observers have been predicting that the nation of Venezuela would be one of the first to experience an “oil-induced” inflation in the petroleum sector. It looks like this prediction may have come true, and with oil prices increasing in both the market and on the news front, it’s not surprising to see oil prices increasing in the world market. But this is not the entire story; actually, a closer look at Venezuela shows that the drop in oil production is contributing to a global demand increase that in turn is contributing to increased crude oil prices.
The problem with Venezuela is that they cannot produce enough crude oil to offset the increases in demand; when oil prices rise, the nation of Venezuela must rely on imports to make up for the difference in their oil supply and demand. The current import bill is so large that they have declared bankruptcy, even though the country has the largest oil reserves in the world. The problem is that they cannot control the price of oil, and unless they tighten their export controls they will continue to use oil as a source of national revenue.
Recently, the Venezuelan Foreign Minister, Hernando de Lopez, has had discussions with the United States Secretary of State, John Kerry, about the nation’s economic situation. He told the press that the country is working on ways to stem the price increases that are occurring, such as raising domestic production and importing lower-priced barrels of oil from countries like Canada and the United States. There is a general consensus that even with tighter export controls, Venezuela will continue to rely on foreign oil and import from Canada and the United States.
But as the above-quoted quote illustrates, the nation of Venezuela is not alone in facing an increase in oil prices and its dependence on foreign oil. There are a number of other nations with oil reserves that are dependent on imported crude oil. Because of the oil glut in the world market, there is no stopping the trend of oil prices rising, and the supply and demand dynamics in the petroleum sector are changing.
While many nations are hoping to somehow gain a competitive advantage in the World, they’re just using the World as a means to satisfy their economic and political needs. In this regard, the United States government, along with the oil companies that have made billions of dollars in the last few years, are the only real winners.
Instead of relying on a cartel like OPEC to ensure that the world oil market remains open, the United States should adopt policies that allow the free market to continue to function. That way, we don’t have to depend on the OPEC nations to step in and deal with the rise in demand for crude oil.
If the nations of the Middle East were to suddenly suspend oil exports from their own nations, or restrict imports from other nations, the United States would then be faced with higher gasoline prices. In addition, if oil producers were to cut back on production, as some have already begun to do, then gasoline prices would soar.
In order to protect the United States from the direct consequences of higher oil prices, we must embrace policies that allow the free market to set prices, so that we don’t suffer direct consequences because oil producers decide to raise the price of oil. In the long run, we need to ensure that we get a level price for crude oil, so that consumers don’t get hurt.
The fact is that the United States has long since maxed out our own domestic oil resources, and there is no way that our oil producers can produce enough oil to make up for the demand that we will soon face as a result of increased oil consumption around the world. Unless, of course, we believe that oil markets would not respond appropriately to the changes in price that we are now seeing.