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OPEC: Venezuela's oil reserves exceed Saudi Arabia's reserves. How will this affect oil markets?
Will Saudi Arabia maintain its dominant position in OPEC? How will oil prices be affected as a result of this revelation?
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5 Answers
It has been known for many years that the size of Venezuela's extra-heavy oil resource in the Orinoco Belt is far greater than Saudi Arabia's oil reserve. But a resource is not the same as a reserve. The total oil in place is a resource, but the amount that can be economically produced at a high probability is a proven reserve.
For political reasons, countries have sometimes made the decision to shift a higher quantity of their resources into the reserve category. The Chavez administration certainly has political reasons for doing this, but the unavoidable fact is that under that administration horrible mismanagement of the oil industry has taken place, and this shows up in oil production numbers that have declined for several years in a row. Over the past decade, Venezuelan oil production has fallen by a third.
So, this is unlikely to have any lasting impact on the oil markets. It would be as if the U.S. suddenly classified our multi-trillion barrel oil shale resource as a proven reserve. It might make us feel good, until everyone realized that there is at present no way to economically produce this. The reason for this boils down to the amount of water and energy required to turn a barrel of oil shale resource into a barrel of oil; if the cost is greater than the cost of the oil you produce, you don't do it. This has been the case for over 100 years, which is why we have a huge resource and no production from it. This is the same situation with most of Venezuela's heavy oil.
This is of course complete nonsense *unless* you are using Orinoco oilsand oil reserve estimates to bump the Venezuela oil reserve number into the stratosphere
You should add the keyword: producible
Then we get onto costs. To be sure plenty of analysts say Canadian tarsand oil can be competitive with Saudi and other conventional oil, but ramping up the scale to cover loss of conventional oil capacity, with unconventional oil, has to hit certain limits, some time. And in the meantime, oil prices will rise.
In fact the present sovereign debt crisis and the plight of the dollar, euro and yen means that oil prices will grow until and unless we get total meltdown of the economy.
Excellent comment from Robert Rapier IMHO
Since the oil price, current and short term is the only real subject of interest, why waste time on pondering heavy oil, when an extra-light, and lightening US dollar, as well as junk status for the euro and yen, makes higher oil price sure and certain, until the global economy bombs out into recession ?
Totally agree with Robert, Venezuela has plenty of heavy oil, and its commercialization can proof to be economically unattractive when compared with the high margin barrels produced in Saudi Arabia; on the other hand while the Arab spring continues, it is likely to see more disruption in oil producing countries in the middle-east, companies will continue to write-off investments in troubled countries (i.e. Libya), and this could be a window of opportunity for oil producing countries outside the middle-east (i.e. Venezuela) to sell more barrels into the market. But I’m not expecting to see any significant changes for now in the market as a consequence of OPEC's latest report on Venezuela having more Reserves than Venezuela.
typo on my last sentence, the last word should be Saudi Arabia and not Venezuela.
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