Venezuelan Oil Sector Maintains Slow Growth Amid Investment Struggles and Price Concerns

Caracas, October 17, 2024 (venezuelanalysis.com) – The Venezuelan oil industry has continued to register modest output gains despite difficulties imposed by US sanctions and energy market volatility.

The latest Organization of the Petroleum Exporting Countries (OPEC) monthly report placed the Caribbean nation’s September production at 877,000 barrels per day (bpd), as measured by secondary sources. The figure rose by 2,000 bpd compared to August.

For its part, state oil company PDVSA reported an output of 943,000 bpd last month, up from 927,000 the prior month.

Venezuela’s oil exports receded 9 percent compared to August, according to Reuters. They averaged 842,600 bpd of crude and fuel and 267,000 metric tons of oil byproducts and petrochemicals. Asian markets received the bulk of the cargo, with the United States coming second.

Since 2017, Venezuela’s oil sector has been targeted by US-led economic coercive measures. The US Treasury Department has levied financial sanctions, an export embargo, secondary sanctions and a raft of other orders aimed at choking the country’s main source of revenue.

A six-month waiver, General License 44 (GL44), allowed PDVSA to export crude freely without resorting to unreliable intermediaries and levying discounts. The Biden administration reimposed wide-reaching sanctions in April after alleging that the Nicolás Maduro government had not fulfilled agreements with the US-backed opposition.

Venezuela’s oil output fell precipitously from 1.9 million bpd before the first sanctions to decades-lows around 350,000 bpd in 2020. The industry has steadily recovered since but without hitting the 1 million bpd milestone.

The Maduro government has looked toward foreign investment to boost the oil industry. However, the US Treasury Department has threatened corporations with secondary sanctions should they engage with PDVSA without requesting permission.

Since April’s expiry of GL44, India’s Reliance Industries has been the only corporation to receive a green light from the US Treasury to import Venezuelan oil. The country’s extra-heavy crude blends remain in high demand in India, with trader Vitol reportedly set to ship 2 million barrels to state refineries in November.

Nevertheless, PDVSA suffered a setback with a proposed deal with Jindal Power falling through. The company, which belongs to the massive OP Jindal Group, aimed to take over a minority stake at the Petrocedeño joint venture which was previously owned by France’s Total and Norway’s Equinor.

According to Bloomberg, the deal fell through over a disagreement over operational control of the 160,000 bpd-capacity project. It is not known whether Jindal had sought approval from the US Treasury. Jindal Steel & Power, another firm from the same conglomerate, currently operates Venezuela’s largest iron-ore complex.

Venezuela’s present struggles to secure foreign investment have been compounded by a steep fall in oil prices. The Merey 16 blend, PDVSA’s flagship export to Asian markets, fell by 11.6 percent in September, from US $62.15 to $54.91 per barrel, as registered in the latest OPEC report.

Merey’s price has fallen continuously by 27 percent from an April high of $74.91 per barrel. It now stands nearly $15 below the West Texas Intermediate (WTI) benchmark. And Venezuela’s revenues are further hurt by the need to offer discounts in order to circumvent sanctions.

Oil prices recently rebounded over fears of wider Middle East instability. Investment bank JP Morgan estimates that crude prices will grow in the last quarter of the year.

While Venezuelan authorities look to shore up and boost oil production, US officials have openly threatened to levy new sanctions against the South American country’s oil sector. 

The Biden administration has backed the Venezuelan far-right opposition’s claim that its candidate Edmundo González won the July 28 presidential election. The contest saw Maduro secure a third six-year term through January 2031. The Venezuelan Supreme Court ratified the results in August.

Hardline US representatives have called on the White House to revoke existing licenses allowing US oil giant Chevron and European companies Repsol (Spain), Eni (Italy) and Maurel & Prom (France) to operate in joint ventures with PDVSA.