Chavez's death ripples oil trade

NEW YORK - Reaction in the oil market to the death of Venezuelan President Hugo Chavez was muted Tuesday, with the price of crude rising slightly in electronic trading in New York.

Chavez, 58, battled cancer for two years. In December, he underwent what officials described as a complicated six-hour, cancer-related surgery.

The full impact of his death on the oil market may not be known until Venezuela elects new leadership. In the short term, analysts expect the country's long decline in oil production to continue. Longer term, though, production could increase dramatically. Venezuela sits on the world's second-largest oil reserves, trailing only Saudi Arabia.

The price of oil rose 22 cents, to $90.98 a barrel, in electronic trading in New York, in the three hours after Chavez's death was announced.

Energy historian Daniel Yergin said Tuesday that it was a plunge in oil prices and the resulting discontent in Venezuela that gave Chavez the opening to win election in December 1998. Rising prices then helped him consolidate power by allowing him to fund popular programs.

"It's too soon to say what Hugo Chavez's death means for oil prices, but it is certainly true that oil prices are what made Hugo Chavez possible," Yergin said.

But the country's production began to decline soon after Chavez assumed power, because he declined to invest in new drilling to replace depleting fields.

By 2011, the country's output had dropped to 2.5 million barrels a day from 3.5 million barrels per day in 2000, according the Energy Department, and exports had fallen to 1.7 million barrels a day. Oil accounts for 95 percent of Venezuela's export earnings.

During his tenure, Chavez increasingly turned against the United States, although he continued to depend on the U.S. for oil revenue.

Citgo Petroleum Corp., the country's U.S.-based oil company, operates three refineries in Texas, Louisiana and Illinois, and sells fuel through thousands of gas stations. Citgo has been used by Chavez to distribute discounted heating oil to poor American families in a high-profile program aimed at criticizing Washington's approach to the needy.

Former U.S. Rep. Joseph Kennedy II, head of Citizens Energy, mourned Chavez, saying that the leader of Venezuela and his people donated about 200 million gallons of heating oil to Citizens Energy, which distributes oil to lower-income families in 25 states and Washington, D.C.

Kennedy said nearly two million people in the United States received the nonprofit's assistance thanks to Chavez.