Venezuela: Oil Output Stagnant as Inflation Continues Slowdown

The Venezuelan economy has now had four consecutive months without hyperinflation.

By Ricardo Vaz
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Amuay refinery in Falcon State. (Archive)
Amuay refinery in Falcon State. (Archive)

Caracas, July 11, 2019 (venezuelanalysis.com) – Venezuela’s oil production has remained steady for the third straight month, according to OPEC figures released on Thursday.

The oil cartel’s monthly report placed the country’s June oil output at 734 thousand barrels per day (bpd), according to secondary sources, down from 750 thousand bpd in May. The numbers reported directly by state oil company PDVSA were 1,050 and 1,047 thousand bpd for May and June, respectively.

The OPEC figures seem to contradict unofficial numbers quoted by Reuters, reportedly submitted by Refinitiv Eikon and PDVSA sources, which indicated oil exports jumping from 874,000 bpd to 1.1 million bpd.

Venezuela’s oil production fell by 30 percent following the imposition of US financial sanctions in August 2017, dropping from an average of 1.911 million barrels per day (bpd) in 2017 to 1.354 million in 2018.

Output further plummeted 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, and hovering around this value ever since. Production may be set for another dip in July, as Reuters reported that the country’s two main refining complexes, Amuay and Cardon, were paralyzed last week due to power outages.

Caracas has scrambled to find new buyers in response to Washington’s oil embargo. Efforts to ramp up exports to India – until January the country’s second largest cash buyer after the US – were derailed by US threats of secondary sanctions. Oil Minister Manuel Quevedo recently announced plans to recover production and reroute it to Asia, with China now the main destination. However, a significant portion of oil exports to the Asian giant are used to cancel debt as part of oil-for-loan agreements.

The stagnant oil figures coincide with reports that June was the fourth consecutive month with inflation below 50 percent, the threshold for hyperinflation. According to the finance commission of the opposition-controlled National Assembly, inflation was registered at 24.8 percent in June, down from 31.3 percent in May. The total accumulated inflation over the past 12 months now sits at 445,000 percent.

The Venezuelan Central Bank (BCV) recently released inflation figures and other economic indicators after an over three year hiatus. The BCV figures differ from those from the National Assembly, but both sets agree that the country exited hyperinflation in March. Official inflation figures for May and June have yet to be released.

The Venezuelan government implemented a comprehensive set of economic reforms in August 2018, including a monetary reconversion, a devaluation of the exchange rate, and pegging the currency to the Petro cryptocurrency. Nevertheless, the measures did not slow down hyperinflation, forcing the government to raise salaries by devaluing the Bolivar-Petro exchange rate.

The BCV changed policy in December, aggressively devaluing the Bolivar-USD exchange rate in the official DICOM foreign currency auctions to maintain pace with parallel market indicators. The Central Bank later announced the elimination of currency exchange controls in May, with “exchange tables” now being run by public and private banks, communicating exchange rates to the BCV. In the two months since, the exchange rate has been devalued by some 36 percent, from 5,262 to 7,156 BsS per USD.

These measures, along with restrictions on the amount of bolivars in circulation, have been credited for bringing inflation under control. However, analysts have expressed concerns that reduced inflation has come at the expense of contracting demand, risking longer-term economic stagnation.

Edited by Lucas Koerner from Caracas.

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