Venezuela: Oil Production Reportedly Down as Gov’t Defaults on Gold Swap

Sanctions have taken a toll on Venezuela’s oil output and generated fuel shortages.

By Ricardo Vaz
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jose_oil_terminal.jpg

PDVSA's Jose oil terminal in Anzoategui State. (Archive)
PDVSA's Jose oil terminal in Anzoategui State. (Archive)

Caracas, June 5, 2018 (venezuelanalysis.com) – Venezuela’s oil exports reportedly fell by 17 percent in May as the winding down period following the US-imposed embargo came to an end.

According to Reuters, quoting documents from state oil company PDVSA and financial analysts Refinitiv Eikon, production in May averaged 874 thousand barrels per day (bpd), down from the 1.037 million bpd reported by PDVSA in April. OPEC secondary sources placed production at 768 thousand bpd by in April.

Sales to India reportedly plummeted by one third in May. Caracas had looked to significantly increase its exports to India in the wake of new US oil sanctions, with possibilities of oil-for-medicine agreements also floated. However, US officials pressured Indian companies into reducing their commercial dealings with Venezuela.

Venezuela’s declining oil production was significantly exacerbated by the impact of US economic sanctions, with crude output dropping by 30 percent, from an average of 1.911 million barrels per day (bpd) in 2017 to 1.354 million in 2018, following the August 2017 financial sanctions imposed by the Trump administration.

Output further fell in 2019 as a result of the late January US oil embargo as well as nationwide blackouts in March, falling to just 740 thousand bpd in March before rebounding slightly in April.

The US Treasury’s new measures blocking all dealings with PDVSA gave companies a three month window to wind down their activities, which expired last week. Oil sales to the United States have come down from over 500 thousand bpd in January all the way to zero.

However, Bloomberg has reported that Chevron executives have been lobbying the Trump administration for sanctions relief that would allow the California-based oil giant to continue its operations in Venezuela.

According to Bloomberg, oil companies such as Haliburton and Chevron were granted longer waivers, which are due to expire on July 27, with the latter reportedly looking to secure an extension. Former President Hugo Chávez overhauled the country’s hydrocarbon legislation, requiring that PDVSA hold majority stakes in oil joint ventures. However, several multinational corporations have maintained projects in the Caribbean nation.

US sanctions have also affected Caracas’ ability to import diluents and additives required to refine crude and produce fuel. According to Reuters, imports of fuel and diluents fell to 137,500 bpd in May, from over 200,000 bpd in March and April. National demand is estimated at around 250,000 bpd.

Venezuela has looked to set up crude-for-fuel swap deals to circumvent sanctions, but US officials have also targeted these agreements, including with Spanish and Indian companies Repsol and Reliance.

Fuel shortages have generated long queues in pumping stations across the country, especially in western states, as local authorities draw up rationing plans.

The fresh decline in oil production comes as the Venezuelan government allegedly defaulted on a gold swap deal with Deutsche Bank. Venezuela had put up 20 tons of gold as collateral for a 2016 loan. The contract was due to expire in 2021, but according to sources quoted by Bloomberg, missed interest payments have led the German giant to seize the US $750 million worth of collateral and close out the contract.

An increase in the price of gold has meant that the deposited collateral is now worth $120m more than when the agreement was signed. Bloomberg reported that representatives of self-proclaimed “Interim President” Juan Guaido have been in touch with Deutsche Bank officials so that the $120 million difference be placed in an account under Guaido’s control.

US sanctions have severely hampered the Venezuelan government’s ability to engage in financial transactions and to access global credit markets. Several Venezuelan assets held abroad have been frozen, while financial agencies have increasingly refused to work as intermediaries in payments involving the Venezuelan government and state companies.

Obstacles in the traditional financial circuits have also seen Caracas turn ever more to swap agreements, and to transactions involving gold in order to obtain hard currency needed for vital imports of food and medicine.

UN Special Rapporteur Idriss Jazairy argued that US sanctions violate human rights, while an April report from the Washington-based Center for Economic and Policy Research (CEPR) estimated that US unilateral measures have caused over 40,000 deaths in Venezuela since 2017.

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