Chavez Setback May Pinch Oil Prices

Democracy caught a break in Venezuela over the weekend, but will the oil market?

It's hard to tell so far, but the answer seems to depend on the time frame in question and who's asked.

Venezuela, the fifth-largest oil-producing member of the OPEC cartel, provides the U.S with about 12% of its daily oil needs, a fact that the country's loudmouth president, Hugo Chavez, has long exploited politically with vocal threats to cut off supply of the black gold to America.

But Sunday, Venezuelans went to the polls and narrowly rejected Chavez's latest plans to cement his power even further and remove term limits for the presidential job. It would have taken the country another step closer to a Soviet-style dictatorship and could have left Chavez in the role for life.

The stunning referendum defeat was the biggest setback for Chavez during his presidency, and it may have some implications for the oil market and the U.S. economy.

With oil prices recently resting at around a $88 a barrel -- high, but below the all-time intraday record of $99.29 reached last month -- and the wider economy starting to show signs of weakness, the last thing the U.S. needs is a supply shock that could send energy costs into the stratosphere.

The first impact of the referendum is likely to be positive compared to what could have happened had the vote gone through, says Joe Brusuelas, chief economist at IDEAglobal in New York.