Venezuela: Oil Output Reaches 18-Month High Following New Alliance with Iran

Guayaquil, Ecuador, November 11, 2021 (venezuelanalysis.com) – A swap agreement with Iran has allowed Venezuela’s oil output to reach its highest level since hitting decades’ lows in 2020.

According to the latest Organization of Petroleum Exporting Countries (OPEC) monthly report, the Caribbean country’s October production was 590,000 oil barrels per day (bpd), an uptick from September’s 533,000 bpd, as measured by secondary sources. For its part, state oil company PDVSA reported 756,000 bpd, 106,000 bpd up from the previous month.

The October figure represents an 18-month high after a 500,000 bpd average in 2020. However, the uptick is still dramatically shy from the 1.9 million bpd that Venezuela registered in mid 2017 before US sanctions targeted the oil sector and sent it into a steep decline.

In efforts to oust the Nicolás Maduro government, the former Trump administration imposed financial sanctions, an oil embargo, and secondary sanctions while blacklisting shipping companies, threatening intermediaries and seizing US-based Venezuelan oil refinery CITGO. The current Joe Biden White House has kept all measures in place.

Recently, the hardest blow to the South American country’s oilfields and blending stations has been an acute lack of diluents to mix its extra-heavy crude for transportation and export. The shortage began after US sanctions cut PDVSA off from key trade partners.

With Washington making diluent access increasingly difficult, Venezuela has turned to Iran to reactivate its most important industry. In September, PDVSA struck a deal with Iranian National Oil Company (NIOC) to exchange heavy oil for condensate. A 2.1 million-barrel first cargo arrived soon after. The Iran-flagged tanker Dino I dispatched the much-needed diluent in the Sinovensa joint venture, located in the western Orinoco Oil Belt, the country’s largest crude-producing region. A second cargo was delivered in late October.

According to Reuters, the Iranian condensate has also boosted shipments. This month’s oil exports reached 711,193 bpd, a considerable increase from September’s 414,000 bpd, when it registered the lowest mark since October 2020.

The oil sector upward surge comes after PDVSA set a new production target of one million bpd for the end of the year, 500,000 bpd less than its previous goal, according to Bloomberg. The adjustment coincides with the company currently prioritizing lighter crudes to ramp up fuel production amidst severe gasoline and diesel scarcity that has affected agriculture.

The Caribbean country’s Western-designed refineries have suffered from lack of maintenance, as US sanctions blocked purchases of key parts for repair works. Moreover, in October 2020, Washington clamped down on swap deals which had seen PDVSA exchange crude for diesel, gasoline or diluents needed for refining.

Tehran has likewise helped Venezuela meet its fuel needs by sending several gasoline cargos throughout 2020 as part of a “perfect trips” alliance, even though Washington seized four tankers and later sold the cargoes for a reported US $40 million.

The allied nation additionally provided equipment, materials and technicians to restart operations in the 310,000 bpd Cardón refinery and the 645,000 bpd Amuay refinery, which together form the Paraguaná Refining Complex, the main hub for gasoline supply in Venezuela.

Amidst the ongoing efforts to bring the oil industry to its full capacity, operations have been halted several times following accidents. The latest occurred on Wednesday when a fire broke out at the Amuay refinery, forcing it to stop two key gasoline production units.

“There was a fire, it’s now been controlled. The good thing is it didn’t affect the (catalytic) cracking unit,” one worker told Reuters.

While Venezuelan authorities have declared that oil production recovery is a priority, the government has also set in motion a range of strategies to diversify the economy. One key aspect has been offering more favorable conditions for foreign investment, including controversial Special Economic Zones (SEZs).

“The one hundred years of oil dependence are behind us. We are not going to rely on oil anymore, we will no longer mortgage the country for a product,” President Maduro said in a televised address on Thursday.

Edited by Ricardo Vaz from Mérida.