Venezuela Cuts Back Oil Production, Mulls Gasoline Price Hike

Four Iranian tankers carrying fuel and additives have arrived in recent days.

By Ricardo Vaz
Topics
Short URL

gas_prices.jpg

Venezuela has seen nationwide gasoline shortages in recent weeks. (D.Fernandez)
Venezuela has seen nationwide gasoline shortages in recent weeks. (D.Fernandez)

Mérida, May 28, 2020 (venezuelanalysis.com) – Venezuelan state oil company PDVSA is slashing production as it runs out of storage space.

According to Reuters, several PDVSA projects and joint ventures are operating intermittently as global demand continues to contract amid the COVID-19 pandemic.

Inventories of Merey crude, Venezuela’s main export grade, have reached a reported 97 percent capacity at Jose Antonio Anzoategui terminal in eastern Venezuela.

Joint ventures such as Petrosinovensa, Petropiar and Petromonagas in the Orinoco Oil Belt, have been operating intermittently or at reduced capacity. The country’s crude production stood at 637,000 barrels per day (bpd) in April. Production had stabilized towards the end of 2019 after falling precipitously from averages of 1.911 million and 1.354 million bpd in 2017 and 2018, respectively, before tumbling again in recent months.

The Trump administration has hit Venezuela with crushing economic sanctions since 2017, including an oil embargo as well as a blanket ban on dealings with Venezuelan state entities in 2019.

More recently, the US Treasury Department has imposed secondary sanctions on two affiliates of Russia’s Rosneft, prompting the firm to shutter its operations in the country. The Russian energy giant had been carrying up to 60 percent of Venezuela’s crude output in addition to supplying diesel and gasoline. Rosneft’s departure has severely exacerbated existing fuel shortages across the country, with most of Venezuela’s refineries crippled by a lack of imported spare parts and diluents blocked by the US embargo.

The cuts in output come as Iranian fuel tankers continue to arrive in the South American nation to help alleviate fuel shortages. Two tankers have arrived at El Palito refinery in central Carabobo State, a third one at the Paraguana Refining Complex (CRP) in Falcón State, with a fourth one already in Venezuelan waters and a fifth one close behind.

Iran has stepped up its cooperation with Venezuela’s oil sector. Apart from the fuel shipments, the tankers have also brought chemicals and spare parts to perform repair work at the Cardon refinery which is part of the CRP. A direct air corridor has been established, bringing more than 20 direct flights to the refinery in recent weeks, including Chinese technical teams. US officials have denounced the cooperation, threatening further sanctions in response.

The arrival of the tankers has revived a national conversation on gasoline prices, with many analysts urging the government to begin charging in US dollars.

”Gas prices should cover production costs,” political economist Luis Salas told Venezuelanalysis. But he warned that any decision needs to take into account the Venezuelan context and current income levels.

“We cannot go from having the cheapest gasoline in the world to the most expensive, if we take into account its cost compared to minimum or average salaries,” he stressed.

On Tuesday, Venezuelan President Nicolas Maduro said his government would soon unveil a plan to normalize fuel distribution throughout the country.

Maduro added that he had a team of specialists evaluating new price levels, but he did not offer further details. Venezuela has the lowest gasoline prices in the world, with one liter costing fractions of a cent.

However, nationwide shortages have seen the emergence of a burgeoning black market charging drivers as much as US $3 per liter in the capital of Caracas, which has only recently been hit by the scarcities long plaguing other areas of the country.

“Setting prices at international levels would have a dramatic effect on prices,” Salas observed. “As with other costs that have been increased recently, hiking fuel costs can end up causing contracted demand and lower consumption levels for the majority of Venezuelans.”

With production crumbling under the weight of US sanctions, the Maduro government has introduced wholesale changes to the oil industry, with Economy Vice President Tareck El Aissami taking over as oil minister last month.

A presidential commission tasked with reforming the country’s main industry was appointed in February and proceeded to replace a number of high-ranking managers. A leaked document likewise revealed a number of planned policy changes at PDVSA, including the gradual removal of multi-billion dollar gasoline subsidies and new incentives for foreign investment.

Edited and with additional reporting by Lucas Koerner from Santiago de Chile.