If Venezuela goes off-line all crude excess capacity disappears

Saudi Oil Minister Ali al-Naimi has said recently that he wants Saudi Arabia to be the repository of crude inventories. His statement may be put to the test if there is another interruption from Venezuela.
Current Venezuela production is 2.4-2.5 mm bpd. The US imports 1.6-1.65 mm bpd. from Venezuela, but there is only 1.65 mm bpd of excess capacity in the entire world.

The EIA gives a range of excess capacity of 1.65-2.15 mm bpd. The extra 500,000 bpd at the top end of the range is for additional production that could be added by Saudi Arabia within a few months. That would not address the immediate problem created by a Venezuelan interruption. In the short term, if Venezuela goes off-line all excess capacity disappears.
There is no wiggle room. In the face of a repetition of last year's interruption, oil prices will soar. Despite al-Naimi's comments because of the timing problem on receipt of shipments Saudi Arabia cannot be the repository of inventory for the US A quick look at transportation times explains the reason.

Saudi crude is six weeks away from the US. Venezuelan crude takes a little over a week to get to the US. An interruption of Venezuelan exports would leave the US short 1.6 mm bpd for 5 weeks or about 50 mm barrels.
Currently commercial US inventories near a 26 year low only 273.8 mm barrels in storage. The US industry could not operate Without a release from the SPR this is at least a $ 40-$ 50 per barrel scenario.

The Venezuelan Constitution allows for a recall referendum for the President halfway through his term in office. A petition with about 2.4 mm signatures is necessary to bring this to the vote. The Venezuelan electoral council will later tell how many signatures need to be verified. Of course they said that earlier. This is just another delaying tactic by Chavez made a bit easier by the current unrest.
Chavez very nimbly keeps avoiding a direct confrontation with the Venezuelan Constitution but has clearly not followed its intent. The National Elections Council (CNE) dominated by Chavez supporters is expected to outright disqualify 400,000 signatures and require re-verification of another 700,000 before certification.

I spoke with a friend from Venezuela on the validity issue and was told it is a much bigger deal to vote in Venezuela where your must show ID, thumb print and fill out personal information. It has been common practice in the country for the person collecting the forms to fill out personal details and then hand the form to the voter to sign. Thus the nature of the objection does not adhere to common practice.
OAS and Carter observers have asked the commission to recognize the intent of those who signed. Before any revalidation Chavez will do his best to get observers out of the country. There are international observers in Venezuela including Pres. Carter's foundation which National Electoral Council chairman Francisco Carrasquero claimed was leaving the country. This report was immediately denied by the Carter Centre but then repeated again by Carrasquero.

Brazilian President Luiz Inacio Lula da Silva left the G-15 summit after letting it be known that Brazil supported the OAS and Carter Centre's efforts to ensure a fair election.
Chavez has been denouncing US President Bush with expletives not suitable for mixed company and threatening to cut off oil exports to the US If he did the cost the Venezuela would be great. Let's assume he did and that the total crude on the world market stayed the same. Where would he sell the crude? Europe is the most likely customer. Brent crude is roughly the equivalent grade of West Texas Intermediate.

The spot price of Brent has averaged $ 4.26 per barrel less than WTI for the last 30 days. Venezuela would lose that amount plus the transportation cost to Europe if it abandoned the US market. PdVSA's CITGO would have to import sour crude from another source at greater expense to maintain refinery operations. This is a lose-lose scenario for Venezuela. As we used to say in West Texas, "Thatdog don't hunt."
An article in the Financial Times raises the possibility that Chavez will sever diplomatic but not commercial relations with the US The distraction could buy Chavez additional time. A supply interruption for political reasons would cast doubt on the image OPEC has been attempting to create as a reliable provider of crude oil. If Chavez survives attempts to remove him refusal to export to the US would greatly diminish the influence of Venezuela within the organization.

The weak dollar continues to weigh on crude markets and despite the high price in dollars two OPEC members Nigeria and Algeria appear to be tightening supply and inventories remain low especially in the US Does it make sense for OPEC to switch to euros to price oil? Not at this time. If OPEC wanted to switch the best time would be when the Euro was weak so it could gain the benefit when it strengthened.
It will be a critical day for the market with the release of data by the EIA. Anything less than 9.5 mm bpd in imports could send the price up again. Low gasoline inventories could contribute to an upward move.