Page 4 - LatAmOil Week 11 2020

LatAmOil COMMENTARY LatAmOil
A tale of two neighbours
The plunge in crude prices has different implications for Guyana,
South America’s newest oil producer, and established oil producer Venezuela
Orinoco heavy oil belt (Image: USGS)
WHAT:
Lower oil prices could inflict further damage on Venezuela’s economy and slow the process of developing new oilfields in Guyana.
WHY:
Market fluctuations are bringing underlying stresses to the surface.
WHAT NEXT:
Venezuela could see more protests and another exodus of refugees, while Guyana could experience more political disputes.
OIL markets have been hit this month by two heavy blows – namely, the spread of the coro- navirus (COVID-19) outbreak and by Russia’s abandonment of the OPEC-plus agreement on restricting production. Together, these develop- ments have created a situation in which the sup- ply of oil is set to keep growing, even as demand for oil remains weak (and will not grow stronger in the near term).
This is a recipe for a continued bear market. As such, it is certain to put pressure on oil-pro- ducing countries, especially those that do not have a diversified economy.
This essay takes a look at how this pressure might play out in two neighbouring states in South America: Venezuela, an established oil producer, and Guyana, which only began extracting crude a few months ago.
Venezuela
As noted above, Venezuela is already heavily
involved in the business of crude oil extraction. Oil has remained the main engine of the coun- try’s economy for decades, under multiple gov- ernments (and multiple systems of governance).
In recent years, it has also been the main tar- get of the sanctions regime imposed by the US government, which is working to isolate Vene- zuela’s Bolivarian socialist government. (Wash- ington opposes President Nicolas Maduro, the head of this government, who won re-election in late 2018 in a vote that has been widely criti- cised as fraudulent. It favours Juan Guaido, the opposition leader who was appointed interim president in early 2019, and has recognised him as the country’s legitimate leader.)
These sanctions have hurt the country’s economy. Venezuela suffers when it cannot export oil, and US sanctions are designed to discourage other parties from co-operating or trading with the national oil company (NOC) PdVDSA. 
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w w w . N E W S B A S E . c o m Week 11 19•March•2020