Oil traders expecting steep production losses from Venezuela are likely to be underestimating the severity of the country’s crisis, according to analysts at RBC Capital Markets.
In a research note published Monday, analysts at the global investment bank said while oil production in the South American OPEC member is poised to “plunge” in 2018, the extent of its losses could be far worse than investors were anticipating, CNBC reported.
“Given the severity of the crisis, we think market participants would be unwise to assume that Venezuelan production losses will simply mirror the several hundred-thousand barrels per day losses seen in 2014,” Helima Croft, head of global commodity strategy at RBC Capital Markets, said in the note, CNBC reported.
Instead, the analysts said Caracas’ production losses could be at least several hundred-thousand barrels per day higher — and may approach levels last experienced during the Venezuelan oil strike 15 years ago.
Venezuela has dealt with steadily declining production levels in recent years as the oil-dependent state copes with a severe economic crisis, Kallanish Energy understands.
The turmoil has been precipitated by years of government mismanagement and exacerbated by a prolonged oil price slump, CNBC reported.
The major oil-producing nation has been struggling with hyperinflation, recession, food shortages and attempts to restructure foreign debt in order to avoid a default, CNBC reported. This has put its entire economy, including its nationalized oil industry that accounts for most of the country’s export revenue, in jeopardy.
The price of oil collapsed from roughly $114 a barrel in June 2014, due to weak demand, a strong dollar and booming U.S. shale production.