Mérida, April 16, 2020 (venezuelanalysis.com) – Venezuelan oil production fell in March as the country faces the COVID-19 healthcare crisis.
The latest report by Organization of the Petroleum Exporting Countries (OPEC) placed the Caribbean country’s March output at 660,000 barrels per day (bpd), down 100,000 bpd with respect to February, according to secondary sources.
The numbers reported directly by state oil company PDVSA stand higher, at 718,000 bpd, down from 865,000 bpd in February.
The Venezuelan oil industry has seen output decline steeply from 1.911 million and 1.354 million bpd in 2017 and 2018, respectively, following the imposition of crippling US financial sanctions in August 2017.
Production was further hit by a US oil embargo in January 2019. The measure was expanded in August to a blanket ban on all transactions with Venezuelan state entities. The country’s oil output fell throughout 2019 before stabilizing in the last trimester, with output averaging 796,000 bpd over the year.
The US Treasury Department struck further blows to Venezuela’s flagship industry by imposing secondary sanctions on two subsidiaries of Russian energy giant Rosneft for their dealings with PDVSA. With sanctions driving away foreign companies, Rosneft had been buying as much as 60 percent of PDVSA’s output before rerouting to other destinations.
In response to the US unilateral measures, Rosneft ended its operations in Venezuela and transferred its assets to a company directly owned by the Russian government.
Oil operations were further paralyzed by a steep fall in global oil prices in recent weeks. Brent crude was trading at US $27 on Thursday having stood over $60 for most of the past year. For some of PDVSA’s heavy oil extraction projects, some of them joint ventures with foreign companies, this has meant prices are now below production costs.
The so-called OPEC+ group, featuring OPEC members and other major crude producers such as Russia, agreed last week to cut back production in an attempt to push prices back up. However, with the global economy heading into a coronavirus-triggered tailspin, oil prices have yet to recover.
As a result of tightening US sanctions and declining crude output, Venezuela has seen worsened gasoline shortages in recent weeks. The Maduro government has resorted to exchanging PDVSA cargoes directly for fuel as a way to sidestep Treasury measures.
Nevertheless, the Trump administration warned companies such as India’s Reliance Industries that it would also target these kinds of agreements. According to Reuters, Washington has also told foreign companies not to supply fuel to Venezuela.
The crisis has led the Venezuelan government to implement a rationing plan, prioritizing vehicles such as ambulances and food-carrying trucks. President Nicolas Maduro recently vowed that the problem would be overcome in the coming weeks.
Venezuela’s fuel shortages are owed both to reduced imports and output from its refineries. However, PDVSA announced on Wednesday that the El Palito refinery in Carabobo State had been reactivated following months of repair work by its workers. The refinery can process a maximum of 80,000 crude barrels a day, and will produce 35,000 daily drums of gasoline.