Venezuela: Oil Production Recovery Continues as Merey Prices Rise

Caracas is aiming to reach the one million barrels per day benchmark this year while also expanding its customer portfolio.
PDVSA’s negotiating position has improved in recent months as the industry makes a slow recovery. (Reuters)

Caracas, August 16, 2023 ( – Venezuela’s oil production and exports have experienced important growth in recent months amidst efforts to secure more investment and circumvent US sanctions.

The latest OPEC monthly report placed the Caribbean nation’s July crude output at 772,000 barrels per day (bpd), as measured by secondary sources. The figure rose from 734,000 bpd in June. For its part, state oil company PDVSA reported a higher number of 810,000 bpd, up from 796,000 bpd the prior month.

The current output is the highest registered since early 2020 when Washington imposed secondary sanctions against foreign actors dealing with Venezuela’s state oil company PDVSA. Previously, the industry had been hit with financial sanctions in 2017, an export embargo in 2019 and a host of other measures.

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. The following year a slight oil production recovery began but stagnated in 2022 at an average of 690,000-700,000 bpd.

According to Venezuela’s Oil Minister and PDVSA president, Rafael Tellechea, crude output has slowly recovered thanks to workers’ efforts and a sustained governmental strategy. “[We are] demonstrating that it is possible to face the [US] blockade with efficiency and trusting our own capabilities,” he wrote on X (formerly Twitter).

Last month, Tellechea said that he expects the country to finally hit the one million barrels per day benchmark this year, a goal that PDVSA has pursued since 2021, and reach 1.7 million bpd in 2024.

This year, Venezuela’s most important state company went through an extensive internal audit amidst an anti-corruption drive that saw dozens of PDVSA managers, government officials and businessmen arrested for allegedly diverting billions of US dollars in oil sales via cryptocurrency and other schemes. This resulted in a slight fall in crude exports in recent months.

Minister Tellechea reassured that production was never halted while exports have begun to be reinvigorated by the renewal of oil contracts with customers and partners and the signing of supply deals with new buyers.

According to Reuters’ sources, July’s oil exports reached the country’s highest level in almost three and a half years, with 877,032 bpd of crude and refined products shipped, some 22 percent above the previous month. As usual, most shipments went to China as independent refineries in the eastern province of Shandong increased their imports of Venezuela’s heavy Merey and Boscán blends, which they categorized as diluted bitumen.

Caracas also exported 412,000 metric tons of oil byproducts in July, above the two previous months after PDVSA delivered spot cargoes of petroleum coke (petcoke) to Geneva-based Maroil Trading. In June, PDVSA suspended shipments assigned to Maroil amid contract negotiations and an alleged US $423 million dispute over accounts receivable. The firm’s lawyers have assured that relations with Venezuelan authorities remain amicable as they clarify the issue.

The resumption of petcoke sales to Maroil also responded to PDVSA demanding cargoes to be fully prepaid in euros. At the same time, the Venezuelan oil company has approved two contracts to supply petcoke to new customers in order to diversify its buyer portfolio.

US company Chevron likewise contributed to Venezuela’s higher export figures with some 160,000 bpd shipped to its refineries in the United States, above the 134,000 bpd exported in June. For its part, Italy’s Eni received some 60,000 bpd of Venezuelan oil at Repsol’s plants in Spain.

Last year, the three companies received licenses from the US Treasury’s Office of Foreign Assets Control (OFAC) to resume trading in Venezuelan crude. The sanctions waivers have been renewed every six months since their approval.

The rise in crude exports coincided with a price rebound of Venezuela’s 16°API Merey blend, the product favored by Asian markets. The barrel reached $63.28 in July, the highest level in eight months and 12.5 percent above the price reported in May. In comparison, WTI and Brent crudes stand at $79.16 and 83.21, respectively.

Since the imposition of US sanctions in 2017, Venezuela has been forced to sell its heavy crude at a discount in order to secure customers. However, with the world under an energy crunch due to the Ukraine conflict and the Caribbean country increasing production, Caracas has gained a better position to negotiate contracts. Additionally, the renewal of oil supply to US refineries through Chevron contributed to obtaining payments for oil shipments more in line with market references.