Crude oil rallies as Chavez’s political future in doubt

Shutterstock photo - Crude oil futures rallied during Asia's Wednesday session, after reports indicated that Venezuelan President Hugo Chavez would miss his inaugeration. Chavez remains in Cuba due to a medical complication.

Venezuela is the fifth largest exporter of oil in the world, and the country has the largest reserves of heavy crude oil. It leads the Western Hemisphere in light crude reserves.

Chavez has maintained tight control of Venezuela since 1999. He has been battling cancer since at least 2011, and has made frequent trips to Cuba to seek treatment. Chavez's death, or his inability to continue to control Venezuela, could throw its political system into turmoil.

Any political turmoil in Venezuela would call into question the country's oil reserves. A loss of Venezuelan oil, even temporarily, would have devastating effects on global supply.

On the New York Mercantile Exchange, light sweet crude futures for delivery in February traded at USD93.16 a barrel during Asian morning trade, up 0.01% on the session.

Crude oil traded as high as USD93.28 and as low as USD93.02.

Although political turmoil in Venezuela could support oil prices, poor economic data out of Europe might prevent prices from rallying significantly.

On Tuesday, Eurozone unemployment came in at 11.8%, worse than the previous figure of 11.7%. Meanwhile, German factory orders dropped 1.8%.

With limited economic growth, demand for oil in Europe is likely to remain weak.

At this point, there is no solid reason to believe that Chavez won't control Venezuela in 2013. And even if he doesn't, the country could undergo a smooth political transistion where oil production is unaffected.

Still, investors might anticipate further crude strength if Chavez's condition deteroirates. The uncertainity of the situation alone could lead investors to bid oil prices higher.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for February delivery shed 0.8% to trade at USD112.03 a barrel, with the spread between the Brent and crude contracts standing at USD18.87 a barrel.&nb - offers an extensive set of professional tools for the Forex, Commodities, Futures and the Stock Market including real-time data streaming, a comprehensive economic calendar, as well as financial news and technical & fundamental analysis by in-house experts.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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