Mérida, July 17, 2021 (venezuelanalysis.com) – Venezuela’s oil production grew for a second consecutive month and reached its highest level since May 2020.
The latest OPEC monthly report had the Caribbean country’s June output at 529,000 barrels per day (bpd) according to secondary sources. The number represents a 19,000 bpd increase from May.
The figures reported directly by state oil company PDVSA stood higher at 633,000 bpd, up from 582,000 the previous month.
Venezuela’s most important industry has suffered from corruption, a brain drain and mismanagement, and the crushing consequences of US sanctions. After levying financial sanctions against PDVSA in August 2017, Washington imposed an oil embargo in January 2019 which was later followed by secondary sanctions and other measures targeting intermediaries.
Consequently, output fell precipitously from an average of 1.911 million bpd in 2017 to 1.354 million, 796,000 and 500,000 bpd in 2018, 2019 and 2020, respectively. Production recovered after hitting historic lows in the second half of 2020 but suffered a new setback in March when a pipeline explosion caused a shortage of light crudes needed to blend heavy oil into exportable grades.
Oil exports also saw an uptick in June as PDVSA and intermediaries rushed to deliver cargoes to China ahead of a June 12 tax hike on bitumen blends, which include Venezuela’s main export grades Merey (16°API) and Hamaca (23°API). The state oil company has not commented on the consequences of the estimated US $30 per barrel import tax increase by Chinese authorities.
The Nicolás Maduro government has repeatedly pledged to prioritize raising PDVSA’s output as a key for economic recovery. A presidential commission charged with overhauling the industry set a 1.5 million bpd target for the end of the year.
Caracas has looked to attract investment by offering more favorable conditions for foreign capital, including controversial Special Economic Zones (SEZs). However, analysts remain skeptical of major corporations seizing business opportunities as long as the oil sector remains heavily targeted by the US Treasury Department.
The “devastating” unilateral measures have been described as “collective punishment” against the civilian population and condemned by a host of multilateral organizations. Calls have likewise grown louder in Washington circles, with several representatives urging the Biden administration to reevaluate its sanctions policy.
On Monday, the Treasury issued a license allowing the Venezuelan government and PDVSA to import liquefied petroleum gas (LPG) through July 8, 2022. LPG is mainly used as cooking fuel by the wide majority of the population, and severe shortages as a result of sanctions have forced families to resort to electric hotplates or firwood.
LPG average consumption reached a high of 114,000 bpd in 2012. According to Argus Media, the Gas Comunal subsidiary of PDVSA is currently facing a 40,000 bpd deficit. The inability to maintain infrastructure under the US blockade has meant that the state company is no longer able to satisfy domestic demand.
The measure drew criticism from hardline politicians such as Senator Marco Rubio (R-FL), one of the main backers of the former Trump administration’s “maximum pressure” policy. In response, US deputy assistant secretary of state Kevin O'Reilly said in a virtual event that the license was a “humanitarian gesture.” He added that the sanctions against the oil sector would remain in place until Washington approves of Venezuela’s electoral conditions.
However, the LPG license is unlikely to allow Caracas to tackle its cooking fuel shortages. The document states that Caracas remains barred from paying in kind with petroleum or petroleum products (swap deals) or through other sanctioned people and companies. With PDVSA and the Venezuelan government shut out of financial markets it remains unclear whether they will be able to effectively import LPG.