U.S. oil prices since January 2007, from the U.S. Energy Information Administration.
In a February 7 piece on AOL’s DailyFinance blog, reporter Vishesh Kumar foresees a drop in world petroleum prices this year. Led by slowing Chinese demand, sluggish U.S. economic growth, and more production in Iraq, Kumar cites analysts who predict that oil prices could slump from their current $70 per barrel (closer to $75 today after U.S. snowstorms) to as low as $50.
Other analysts, particularly those who see a stronger U.S. recovery, aren’t as convinced that oil will drop so steeply. But whether the price drops or stays the same, there is a consensus that world oil markets are currently glutted and the price is unlikely to rise in 2010.
Kumar’s prediction would be a disaster for Venezuela, whose oil-dependent economy is already battered by a deep recession, water and electricity shortages, high inflation and scarcities of several basic foods. President Hugo ChÃ¡vez is facing economic discontent as the country inches closer to September 26 voting to elect a new National Assembly. The Assembly elected in 2005, in a vote boycotted by all opposition parties, ended up being almost unanimously pro-ChÃ¡vez, eliminating a critical check on executive power. There will be no boycott this time, so the next Assembly will have far greater opposition-party representation â€” perhaps even a combined majority if trends continue.
As Venezuela’s economic and political problems mount, President ChÃ¡vez needs a fresh infusion of cash to keep his revolution going (dipping deeply into government reserves is a poor and risky option). In Venezuela’s undiversified economy, that cash can come from only one source: rising oil revenues.
But since oil prices don’t look like they’re about to rise, and may in fact fall further, we have to conclude that Venezuela’s 2010 outlook is bleak. The period between now and the September elections is going to be tense.