Caracas, June 16, 2022 (venezuelanalysis.com) – Venezuela’s oil production remains steady while exports to Europe begin to resume following the easing of some US restrictions.
The Organization of Petroleum Exporting Countries (OPEC) placed Caracas’ May output at 717,000 barrels per day (bpd), as measured by secondary sources, 2,000 bpd less than April. The numbers reported directly by Venezuelan state oil company PDVSA stood higher at 735,000 bpd but slightly below the 775,000 bpd from the previous month.
However, oil exports fell for a third consecutive month, by 49 percent compared to April, reaching the lowest level since October 2020. Reuters reported that the drop was due to returned cargoes over alleged poor crude quality as well as delays caused by repair works on the José oil terminal, located in the northeastern Anzoátegui state. Two of PDVSA’s four upgraders were also temporarily shut because of power outages.
With a number of returned cargoes in recent times, PDVSA has been struggling with storage space. Accumulated lower-quality diluted crude oil (DCO) has forced the company to cut down production and exports. The bottleneck could be eased in the coming months following the arrival on June 10 of an oil tanker chartered by Italian oil company Eni to reportedly carry 650,000 barrels of DCO.
According to Bloomberg, the renewed shipments to Europe could give a moderate push to Caracas’ crude exports as sources claim that two European firms, Eni and Spain’s Repsol, are expected to lift a combined 2 million barrels in June.
Eni’s first cargo to Europe follows an authorization issued last month by the US Treasury Department greenlighting the Italian firm and Repsol to resume oil-for-debt swap deals with PDVSA that were halted by the former Trump administration in 2020. Chevron, the most notable lobbyist for US sanctions relief, was not granted a similar license but was allowed to negotiate its future operations in Venezuela. The US firm has stakes in four joint ventures with a combined 200,000 bpd capacity.
The two European corporations hold stakes in several oil and natural gas projects in Venezuela, including the co-owned Cardón IV venture, which last year produced a reported 284 million cubic feet per day of natural gas. Eni and Repsol are allegedly looking to use Venezuelan oil imports to make up for lost gas sales as well as for collecting unpaid debts.
The permissions granted to Eni and Repsol came as Washington tries to alleviate a supply crisis generated by the US and European embargos on Russian energy imports by redirecting Venezuelan oil shipments from China to Europe. The Asian giant has been Venezuela’s main crude buyer despite sanctions and the Covid-19 lockdown measures in China that have contributed to the recent decreases in PDVSA's exports.
Historically, oil sales have been Venezuela’s main source of foreign income but these were blocked by Washington’s sanctions program designed to cripple the economy in an effort to oust the Nicolás Maduro government. Foreign companies were forced to gradually abandon operations as well as oil agreements with Venezuela following the 2017 financial sanctions against PDVSA, the 2019 oil embargo, subsequent secondary sanctions and a raft of other measures throughout 2020.
As a result, the country’s crude output fell to historic lows, going from 1.9 million bpd in 2017 to less than 500,000 bpd by the end of 2020.
Despite a struggling oil industry under crushing US coercive measures, Venezuela has slowly improved crude production with assistance from Iran. In September 2021, Caracas and Tehran struck an oil-for-condensate swap agreement to dilute PDVSA extra-heavy crude into exportable grades, thus boosting the industry’s output and exports.
In May, the allied nations expanded the swap deal to add the supply of Iran’s flagship 29.5°API heavy oil, a lighter alternative to Venezuela's 16°API Merey blend, in order to feed refineries and increase gasoline and diesel production. On June 13, Reuters reported that an Iran-flagged tanker delivered around 1 million barrels of crude to PDVSA, the third shipment in less than two months. According to tracking data, the Iranian vessels returned home loaded with Venezuelan heavy oil and fuel in exchange.
The cooperation between the two US-sanctioned countries includes repair works in PDVSA's 146,000 bpd El Palito refinery in Carabobo state and the Amuay and Cardón refineries in Falcón state. The latter two form the 955,000 bpd Paraguaná Refining Complex, the largest in the hemisphere. The Middle Eastern nation had previously helped tackle fuel shortages in Venezuela by sending fuel shipments and supplying materials and expertise to restart refineries throughout 2020.
Recently, the Iran-Venezuela alliance was widened with President Nicolás Maduro visiting Tehran on June 10-11 to meet his Iranian counterpart Ibrahim Raisi and Oil Minister Javad Owji, who visited Venezuela in May. The leaders agreed on a 20-year cooperation deal to strengthen political and economic ties, with an emphasis on the oil and petrochemical sectors.
In Tehran, Maduro was additionally presented with the second of four new oil tankers built between Iranian company Sadra and Venezuela's PDVSA, with an 800,000 barrel capacity.
The Venezuelan mandatary’s two-day visit to Iran was part of an ongoing foreign tour which included stops in Turkey, Algeria, Kuwait, Qatar and Azerbaijan to expand diplomatic and economic relations.
While in Kuwait, Maduro held a meeting with OPEC's upcoming secretary-general Haitham Al Ghais. "[We] agreed on the need to continue creating mechanisms to achieve stability in the world energy market," he tweeted on Tuesday.
Edited by Ricardo Vaz in Caracas.
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