When you think of Hugo Chavez, you really have to think of the price of oil because oil put him in power and kept him there. Chavez was swept into power because, among other reasons, the low cost of oil. Oil producing countries were suffering economically because of over production and the Asian financial crisis. Chavez rode that economic turmoil into office and the subsequent run up in oil prices helped keep him there.
Chavez became a major figure in OPEC early on as he vowed that Venezuela would stop cheating on OPEC quotas and helped get credit for engineering a bottom in the price of oil. He proposed and ultimately got established the "OPEC Price band” where OPEC would adjust production either up or down depending on what end the price broke out. The price band was later abandoned as surging demand from China meant that the market needed every drop of oil that OPEC could pump.
Of course, as it has been with many other South American populist leaders, he used Venezuela's rich natural resources to cement his power, enrich himself and his cronies and basically pillaged Petróleos de Venezuela, S.A. (PDVSA) the state owned Oil Company. Instead of prospering under the historic run up in oil prices, Venezuela just sucked the life out its oil industry. Chavez squandered the greatest oil bull market in history. Seeing that Venezuela at the time he took power had the biggest proven oil reserves in the world (296 billion barrels, compared with Saudi Arabia's 265 billion), Venezuelan production fell under his tenure.
He tried to diversify away from being dependent on selling oil to his biggest customer, the United States, where the refineries were built on the U.S. Gulf Coast partly to refine Venezuelan heavy crude. Instead of being a major player during the run-up from $10 per barrel when he won power in December 1998 to peak at $147 in July, 2008, they are now an afterthought on the global export market and countless billions of dollars that could have gone into the Venezuelan economy will be lost forever as the world moves away from oil and toward natural gas.
Today oil will look beyond the demise of Mr. Chavez and to the future! A surprise big build in crude supply overshadowed the Chavez death news and oil, after a respectful jump, fell hard. Crude stocks were up 5.6 million barrels. Still the product numbers from API were a bit supportive. Distillate stocks were down 1.7 million barrels and gas stocks off 914,000 barrels. Still we should see more choppy action as the market is still trying to establish a starting point for its seasonal spring run.
More news on the long term bottom in natural gas! Warren Buffet of Berkshire Hathaway owner of the Burlington Northern railroad is looking to switch their locomotives to natural gas. Bloomberg reports that, "BNSF is working with its locomotive suppliers like General Electric Co. and Caterpillar Inc., to explore buying units that would run on natural gas, CEO Matt Rose said in a January interview. Traditional locomotives use diesel engines to power generators for the electric motors driving the wheels.”
Hugo Chavez squandered a historic opportunity in oil, don't you do the same thing with natural gas.