Why are we propping up Venezuela with crude oil purchases?

This is one of those good news, bad news stories coming out of the energy industry. To start things off on a positive note, here’s the good news. The American oil production rig count is finally back on the rise after hitting historic lows this spring in the midst of the oil glut. And all of the growth is taking place in Texas. (Fuel Fix)

Companies added more drilling rigs to the Texas oilfields as the total U.S. rig count continues to grow.

The number of rigs actively seeking oil grew by seven this past week, and all of them in Texas’ Permian Basin or Eagle Ford shale. The overall rig count only grew by one, because the amount of rigs drilling for natural gas fell.

The total rig count is now at 464 rigs, up from an all-time low of 404 rigs in May, according to data from the Baker Hughes oil field services firm. Of the total tally, 381 of them are primarily drilling for oil.

464 rigs sounds like pretty good news when compared to 404, but before you get too excited let’s remember that we were at 1,609 rigs in 2014. (That was just before our new dominance in global energy production was solidified and led to crashing oil and gasoline prices.) Still, movement in a positive direction is always good news. Unfortunately, it’s not yet being reflected in the American energy jobs market. Oil and gas industry jobs are down 26% in the US since 2014. Things are starting to pick up and the actual hiring for long term production work always lags a bit behind the rigs coming on line, but we’re going to need a sustained period of growth before the jobs situation gets back to anywhere near what it was at the peak.

The last bit of news to include here is perhaps the most disturbing. As I was going through the import export numbers I was rather surprised to find that the one country who doesn’t seem to have been much affected by our reduced dependence on foreign sources is Venezuela. In fact, they’re recording a recent net increase in crude oil exports to the United States. (Reuters)

Venezuelan crude sales to the United States increased to 817,806 barrels per day (bdp) in July, the highest level since November, due to larger exports of grades produced in the vast Orinoco Belt, according to Thomson Reuters trade flows data.

The South American nation’s July shipments to the United States were 25 percent higher than in June and 12 percent more than in the same month in 2015. Falling output and delays at Venezuela’s main oil port had kept exports low in recent months.

In case you were wondering, Venezuela is doing quite well in terms of their business with us. We are still their number one customer for crude oil exports and their shipping volume only declined 6 percent in the first seven months of 2016. Here’s the question which should be on everyone’s minds… why? Yes, I understand it’s a free market and I don’t want the government coming in and tinkering with it. Also, they produce some very heavy crude hybrids which are specific to particular production needs. But overall, we have plenty of options. We’ve broken the barrier of being self-sufficient for all intents and purposes, particularly when you include the oil we import from our most reliable partner, Canada.

Venezuela is a socialist nation which is in the process of collapsing amid food riots and other problems. The fault for this rest entirely on their own government’s shoulders because this is how socialism always ends. So what course of action in terms of energy trade is in the best long term interests of the United States? On the one hand, we could encourage far lower imports and see if their government topples under its own weight. Of course, that leaves the country in even more chaos and it could turn into essentially a failed state leading to an even larger flood of refugees heading our way. But if we continue to help them out as their best customer, do we get any credit for that? I find it hard to believe that their government is singing the praises of The Great Satan for keeping their cash flow going.

I’m not offering a quick solution here because it’s a vastly complex issue which is largely dependent on individual actors in the free market. But I still find it troubling. One of the chief advantages of becoming a global leader in energy production (and encouraging government policies which promote energy independence) was that it would provide us with leverage over bad actors who have traditionally relied on the American market for their products. It seems like we should be able to effect more positive change in Venezuela under these circumstances.


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Jazz Shaw 8:01 PM on December 06, 2022