Venezuela turmoil fueling energy commodities boom

Energy commodity prices are set to jump over 20% this year as turbulence in Venezuela impacts global oil stockpiles, according to a new World Bank report.

Crude prices are projected to average US$65/b in 2018, up from US$53/b last year, while natural gas benchmarks are also poised to rise sharply, according to the multilateral's Commodity Markets Outlook published on Wednesday.

In the last edition of the report published in October, the World Bank projected a 4% increase in energy commodity prices this year.

"Oil prices have more than doubled since bottoming in early 2016, as the large overhang of inventories has been reduced significantly," the report's lead author John Baffes said.

"Strong oil demand and greater compliance by the OPEC and non-OPEC producers with their agreed output pledges helped tip the market into deficit."

Brent crude was trading at US$73/b in London on Wednesday, up from around US$45/b last June.

VENEZUELA

The report said the supply squeeze was partly due to plummeting production in Venezuela, where the oil industry has been battered by political and economic chaos.

Despite sitting on the world's largest hydrocarbon reserves, the OPEC nation has seen crude output fall by more than 1Mb/d since 2015. The local industry has been ravaged by hyperinflation, corruption, payment delays, an exodus of skilled workers and US sanctions that have cut off access to financing.

According to Francisco Monaldi, a Latin America energy policy fellow at the Baker Institute, Venezuela could post annual average output of less than 1.5Mb/d this year for the first time since 1949.

RISING DEMAND

The fall in global crude inventories has coincided with signs of resurgent demand, according to the report.

Oil consumption climbed by an estimated 1.6% in the first quarter, having expanded by the same figure last year on an annual comparison.

The World Bank said the new oil market dynamics are likely to also impact the natural gas segment in the near to mid-term.

"Higher oil prices are expected to eventually feed into higher natural gas prices while coal prices will continue to decline as energy demand shifts towards less polluting sources," the report said.

"Upside risks to the forecasts include potential supply losses arising from geopolitical events, a deterioration in ... Venezuela, deeper cuts by OPEC and non-OPEC countries or an extension of the agreement to a longer-term horizon. Conversely, a weakening of the agreement, or further efficiency gains among US shale producers could depress prices," it added.