Home' Trinidad and Tobago Guardian : August 3rd 2017 Contents BG8 | ENERGY
BUSINESS GUARDIAN guardian.co.tt AUGUST 3 • 2017
How Venezuela chaos
could spark oil rally
Deepening turmoil in Ven-
ezuela could fuel a rise in
oil prices---something the
Organisation of the Petro-
leum Exporting Countries,
despite its efforts to cut
back production, hasn't been able to do.
The South American nation, home to the
world's largest oil reserves, on Sunday voted
to give President Nicolás Maduro's govern-
ment overwhelming powers to redraft the
constitution, sparking clashes between pro-
testers and state security forces. The oppo-
sition charges the vote could mark the end
of democracy in Venezuela.
The "possibility of chaos" in the country is
the "only true element that would change the
dynamic for crude," Tom Kloza, global head
of energy analysis at Oil Price Information
Service, told MarketWatch.
If "Vendemonium," as he dubbed it, comes
to pass, it could lift West Texas Intermedi-
ate crude-oil prices up from their current
trading range of roughly US$42 to US$53 a
barrel, said Kloza.
For oil, there is "ongoing concern about
stability as the opposition gains strength and
the chance that the US will ratchet up pres-
sure by halting imports," James Williams,
energy economist at WTRG Economics told
MarketWatch. Venezuela is among the top
suppliers of crude to the US, though its pro-
duction has declined since last year on the
heels of civil unrest.
Venezuela's oil output has dropped over
the last year. A long strike by PdVSA workers
was to blame for the huge drop in 2003.
The situation intensified Thursday, with
the US State Department ordering family
members of US embassy employees in Ca-
racas to leave the country.
"If we are removing diplomats, it is cer-
tainly an indicator of the intent to embargo
oil from Venezuela," said Williams.
"If Maduro installs puppeteers who more
or less make up new constitutional rules, it
really puts an already beleaguered Trump
administration in a tough spot," said Kloza.
Still, if the Trump administration tries
to put financial handcuffs on Venezuela's
state-owned Petróleos de Venezuela, SA, or
PdVSA, it might provide the catalyst for the
oil market and for consumer gasoline prices
to rise appreciably," Kloza said.
And the impact could be far reaching, with
financial handcuffs or penalties potentially
signaling incredible turbulence for Citgo,
Citgo Petroleum Corp, the Venezue-
la-owned American refiner, employs thou-
sands of US citizens and is instrumental in
ensuring adequate supply of gasoline, diesel
fuel and jet fuel," said Kloza.
For now, traders can just "hope that Trump
only target individuals, not oil" when it
comes to sanctions, said Williams.
He also warned that the market could see a
reaction from the US that is "more complex
than a simple halt in imports."
Meanwhile, Kloza said that if Venezue-
lan crude continues to flow, there is limited
upside for the oil market "despite the large
inventory draws that have happened and will
continue to happen for some time."
"Without 'Vendemonium,' we're destined
to remain in a low-price oil environment
into 2018 or later," said Kloza.
Exxon 2Q profit
doubles in a
year but misses
Exxon Mobil Corp cut spending on oil exploration,
helping boost its earnings to US$3.35 billion in the
second quarter, doubling its historically low profit
of a year ago.
Profit rose for both production of oil and gas and
Exxon's refining business. The results, however, still
fell short of Wall Street expectations.
Crude prices are currently trading around US$49 a
barrel, up about 18 per cent from a year ago, helping
to boost the finances of Exxon and other oil and gas
The Irving, Texas-based oil giant said Friday that
it earned 78 cents per share, which was not adjusted
for one-time items such as asset sales. Nine analysts
surveyed by Zacks Investment Research expected 83
cents per share on average.
Revenue rose nine per cent to US$62.88 billion,
beating the US$61.16 billion forecast of four analysts
in the Zacks survey.
Exxon said higher prices it got for oil and gas helped
offset a 1 percent decline in production of oil and gas.
Exxon's exploration and production side earned
US$1.2 billion, an increase of US$890 million from
a year ago, despite a narrow loss in US production.
That profit matched the amount that Exxon slashed
from capital and exploration, a 24 per cent reduction
from a year earlier.
The company posted a US$1.4 billion profit from
refining and selling petroleum products, up US$560
million from a year earlier on higher margins.
Exxon spent less than it forecast on exploration
in the first half of the year. CFRA Research analyst
Stewart Glickman said that showed discipline but
came with a tradeoff in production. He slightly re-
duced his estimates for earnings in 2017 and 2018.
Exxon is trying to boost production in the Permian
Basin in Texas. It is also pushing ahead with drilling
off the coast of Guyana in South America, with pro-
duction expected to begin by 2020.
The company has said that test wells hit high-qual-
ity oil reservoirs.
Saudis looks to
flexible tax system
Saudi Arabia is considering a flexible tax system for
state-owned oil company Aramco that would increase
royalty payments when crude prices rise, according
to people familiar with the deliberations.
Riyadh is mulling a proposal from Saudi Aramco
to replace the current fixed royalty on revenues, the
same people said, asking not to be named discussing
government policies. Aramco has proposed to initially
set the royalty at 20 per cent---the same rate as today's
fixed rate---and increase it automatically if oil prices
The Saudi government hasn't yet decided whether
to go ahead with the flexible royalty and it could de-
cide against it, one of the people said. On top of the
royalty, Saudi Arabian Oil Co, as Aramco is formally
known, pays income tax on profit, which the govern-
ment recently cut to 50 per cent from 85 per cent.
The kingdom aims to list about 5 percent of Ara-
mco in an initial public offering in the second half of
2018. While a flexible levy would help the kingdom
to raise extra revenue if oil prices climb, it's likely to
prove unpopular with potential investors as it would
reduce their exposure to higher prices.
The Saudi ministry of finance directed questions
on the flexible royalty to Saudi Aramco. The company
declined to comment.
An anti-government protester launches marbles from a slingshot at National Guards during clashes in Caracas, Venezuela, Friday, July 28,
2017, two days before the vote to begin the rewriting of Venezuela's constitution. Protesters say the election of a constitutional
assembly will allow President Nicolas Maduro to eliminate democratic checks and balances and install an authoritarian single-party
Baker Hughes quarterly loss narrows
Oilfield services provider Baker Hughes, now part of General
Electric Co, expects growth in North American onshore activity
to decelerate in the second half of this year, the company said on
Friday in a filing.
The tempered outlook comes as oil prices fell from highs seen
earlier in the year during the second quarter. This week, several
major producers lowered capital spending plans for the remainder
of the year.
GE's Baker Hughes said it expects international onshore activity
to remain stable, with some areas of "modest growth," and global
offshore drilling activity to remain muted due to lack of customer
confidence in the direction of commodity prices.
Baker Hughes reported a smaller quarterly loss compared with
a year earlier, when it incurred some restructuring charges.
Industrial conglomerate GE earlier this month closed the merger
of its oil and gas business with Baker Hughes, leaping over rival
Halliburton to create the No 2 oilfield services provider. Baker
Hughes' merger with Halliburton Co collapsed last May.
Baker Hughes took restructuring charges of US$1.13 billion and
a goodwill impairment charge of US$1.84 billion in the year-ago
quarter. Its second-quarter numbers do not include results from
GE's oil and gas operations. Reuters
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