Venezuela's having greatest impact on oil prices

www.cfcnplus.ca POSTED AT 3:17 PM Tuesday, January 28

Don't expect a break at the pumps any time soon. The price of oil is still over the $30 mark.

It has now been over that mark for more than three weeks. On Tuesday, oil closed at $32.67 US per barrel.

One factor driving up the price is the uncertainty over Iraq, but according to international experts there's a more dominant reason.

Dozens of economists, political scientists and oil-industry officials from around the world are meeting in Calgary this week.

Julian Lee is a senior analyst at the London-based Centre for Global Energy Studies. He said there is no doubt uncertainty over Iraq is helping push up the price of oil.

“The world is short of oil and is afraid it's going to become shorter still,” said Lee.

But, he believes the biggest stressor is Venezuela. A general strike there is in it's ninth week. It means more than two-million barrels of oil a day isn't getting to North American markets.

Venezuelan oil is cheaper, easier to refine and takes five to six days to deliver. Middle East oil takes five to six weeks to deliver.

“The Venezuelan disruption is here, and it's real. The Iraqi disruption is potentially in the future,” said Lee.

Whatever drives up the price, we're the ones paying at the pumps.

Mike Lynch, a political scientist at the Center for International Studies, MIT, said OPEC won't allow the price to stay high for long because we'll stop spending.

“They are concerned about that, because in the end they are the ones who lose the sales,” said Lynch.

Even when the Venezuelan and Iraqi situations are resolved, Lynch said spikes in oil prices are something we'll have to get used to.

“The market has changed in certain ways in the last few years, where you no longer have a lot of surplus capacity acting as a buffer against unstable supply or demand,” explained Lynch.

On top of what's readily available to take out of the ground, Lynch said oil companies have also cut back on inventories.

High inventories are costly and when demand increases, having oil on hand keeps the price down. That eats into profits.