Highlight: "Markets in Review" Issue #3

To Produce or not to Produce

Following the OPEC+ meeting two weeks ago, some countries including Algeria and the UAE, agreed to Saudi Arabia's proposal to reduce global oil production. Meanwhile, Guyana has discovered oil resources along Venezuela's borders which Venezuela claims as theirs.

Guyana is a small country on the northeast coast of South America. For more than a century, Venezuela has maintained that Guyana’s Essequibo region belonged to Venezuela. According to Felix Zulauf, ex-global strategist and ex-head of UBS institutional portfolio management group, the disagreement between the two countries, is only due to each party wanting Oil and Gas for themselves. In 2015, ExxonMobil made a major oil discovery in Guyana’s coast, which led Guyana to become the fastest growing economy in the world. In fact, last year real GDP of Guyana shot up 62.4%, as discussed in the “Global Macro Update” written by Ed D’Agostino.

Given Venezuela’s membership in OPEC+, and how they are subject to US sanctions, they are encouraged on one hand to produce less, while their peculiar economic situation, requires them to do the opposite. A recent Bloomberg documentary investigated the Russian oil trade since the beginning of the Ukraine crisis, showing the existence of a shadow fleet that secretly imports Russian oil into European and US markets, bypassing sanctions. While the US has eased sanctions against Venezuela since October 18, the country may be trying to take the oil resources away from Guyana, with the hopes of bypassing sanctions too, and selling through this alternative market.

Caution is highly advised, for those interested in the oil market, given the combination of these sanctions and policies that provide grounds for greater uncertainty and volatility. We recommend Javier Blas’ article on Bloomberg for more background regarding this issue.

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