Venezuela: Oil Output Continues Steady Growth Amidst Rising Exports and Falling Prices

Lisbon, Portugal, September 12, 2024 (venezuelanalysis.com) – Venezuela’s oil industry has registered another modest production increase.

August’s output was measured at 874,000 barrels per day (bpd) by secondary sources in OPEC’s latest monthly bulletin, up from 863,000 bpd in July. The figure establishes a new five-year high as the country’s most important sector maintains a tendency of steady growth.

For its part, Venezuelan state oil company PDVSA reported an August production of 927,000 bpd, virtually on a par with the prior month’s 928,000.

The Caribbean nation’s oil authorities have repeatedly set a 1 million bpd target as the industry remains heavily hampered by US sanctions. Since 2017, the US Treasury Department has levied financial sanctions, an export embargo, secondary sanctions and a raft of other restrictions aimed at strangling Venezuela’s most important revenue source.

PDVSA benefited from General License 44, a six-month waiver issued by the Biden administration in October 2023, to expand sales and move cargoes without levying significant discounts or using unreliable intermediaries. 

Washington reimposed the wide-reaching sanctions in April after alleging that the Nicolás Maduro government had not fulfilled a political agreement with the US-backed opposition. 

The US has rejected the official results of the Venezuelan presidential election, which saw Maduro secure a third six-year term, and backed hardline opposition candidate Edmundo González’s victory claim. Several US House members have argued for tougher sanctions against the South American nation.

Since the expiration of GL44, the US Treasury has called on international companies to request permission before engaging with PDVSA, under threat of secondary sanctions. US oil giant Chevron, alongside European counterparts Repsol, Eni and Maurel & Prom, has been allowed to continue its operations in Venezuela-based joint ventures.

Indian refining powerhouse Reliance Industries reportedly received a green light to resume Venezuelan crude imports, with part of the payment provided in the form of naphtha supplies. PDVSA requires the diluent to turn extra-heavy crude into exportable grades.

India’s state-owned ONGC Videsh is likewise lobbying for permission to participate in two projects, according to Reuters. 

Venezuelan authorities have increasingly relied on corporate partners to expand production, with legislators touting legal reforms to boost the private sector’s role in the industry.

In late July, PDVSA awarded joint venture stakes to Chinese companies Anhui Erhuan Petroleum Group and Kerui Petroleum. The former is set to participate in the light crude Petrokariña project between Anzoátegui and Monagas states, while the latter will enter the undeveloped Ayacucho 2 field in the oil-rich Orinoco Belt.

It is not clear whether the two firms will approach the US Treasury or defy the coercive measure threats.

Despite the US-imposed obstacles for foreign actors, Venezuelan crude exports rose by 50 percent last month to set a four-year high. Reuters reported an average of 885,000 daily barrels of crude and fuel exported in August. Spanish refineries have received significant amounts of Venezuelan crude via Repsol’s projects in the country.

However, the recent production and sales improvement is dampened by a fall in oil prices, with the Brent crude benchmark briefly falling below US $70 on Tuesday for the first time since 2021. According to Bloomberg, the figure represents a two-decade low when adjusted for inflation.

Venezuela’s Merey grade, the country’s main export which is favored by Asian customers, fell from $67.61 to $62.15 per barrel. The mark has fallen by 17 percent since April to establish a 14-month low.

A foreign currency shortage could strain the Venezuelan government’s inflation control policies. A growing gap between the official and black market exchange rate markers has seen the Venezuelan Central Bank inject a rising amount of US dollars into the forex system.

Analyst Elias Ferrer from Orinoco Research claimed that Venezuela’s sales discounts, coupled with falling oil prices, made a significant currency devaluation “a matter of time.”