Chavez Death Brings Uncertainty, Hope to Oil Patch: Exxon Mobil Corporation (XOM)

Analysts say Venezuelan production will likely fall further in the short term because PDVSA executives may lack clear instructions from a government in transition about how to proceed. But Venezuelan oil supply has been declining for so long and oil markets are well supplied that traders are not concerned that further erosion in Venezuelan supply will disrupt markets.

That could change, however, if instability erupts as new leaders jostle for power and new elections are held, according to Sarah Ladislaw, co-director of the Energy and National Security Program at the Center for International and Strategic Studies. Dramatic unrest could lead to a sharp drop in exports and higher oil prices.

The political uncertainty is already keeping countries who had been investing in the Venezuelan oil industry, including Russia, China, and India, on the sidelines.

But once a new government is established, it will likely look to fix the country’s energy industry as quickly as possible to help alleviate a dismal economic situatio.

Venezuela’s refineries are so weak that the country is forced to import enormous amounts of fuel from the U.S. and elsewhere even as it exports crude. Those imports are especially costly because the government heavily subsidizes gasoline. Venezuelans pay only a few cents per gallon for gasoline, and the subsidies cost the government $25 billion per year, according to Jason Bordoff, Director of the Center on Global Energy Policy at Columbia University.

An increase in oil production and exports could be a boon for the country. “The potential for Venezuelan supply is enormous,” Bordoff says.

The article Chavez Death Brings Uncertainty, Hope to Oil Patch originally appeared on Fool.com.

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