U.S. oil companies leave Venezuela - Expect higher prices

July 4, 2007

Venezuela signed a new contract with seven foreign oil companies in which the state-owned oil company, Petroleos de Venezuela (PDVSA) will get 78% ownership, up from 39%, of the Orinoco oil fields. The drilling projects in Orinoco are valued above $30 billion with an estimated daily production of 600,000 barrels.  Venezuela nationalized these fields in January.

The companies include France's Total, Norway's Statoil, the United States's ChevronTexaco, Britain's BP and Italy's Eni. Two U.S. companies, ExxonMobil and ConocoPhillips, refused the deal, and are thus out of Venezuela altogether. (See BusinessWeek, "Two OIl Giants Exit Venezuela," June 26, 2007)

What Venezuela’s oil industry ownership means:
According to the EIA, Venezuela supplies 8% of U.S. oil imports, the fourth largest foreign source of oil after Saudi Arabia, Canada and Mexico. At the same time, Venezuela has the 7th largest oil reserves in the world -- as much as Russia, and more than the U.S.

Venezuela’s economy is dependent on oil exports, which contribute 1/3 of GDP, and created 10% annual economy growth since 2004. Revenue from oil exports contribute over half of the government's revenue.

Venezuela’s President, Hugo Chavez, was recently reelected because his social programs, financed with oil money, have improved people’s lives. His movement, called Bolivarism, has allies in other Latin American countries such as Ecuador, Bolivia, and Nicaragua. He is also aligned with other countries, such as Russia and Iran, that are using their oil and natural gas reserves to further political aims.

Action steps:
Make sure you have commodities mutual funds, including oil, in your portfolio. Think about ways to decrease your own personal use of oil. This will help not only the greening of the planet, but the greening of your wallet, as well.

For other ideas on how to protect yourself from the high cost of oil, get the WorldMoneyWatch report “Oil’s Hidden Threat”

WorldMoneyWatch Related Links

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Venezuela elections - Expect higher oil prices

Oil hits $70 per barrel - How to protect yourself

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