As if Venezuela’s oil industry is not in a bad enough place already, the country sitting on top of the world’s largest oil reserves is forced to slow already low oil production and suspend some blending because its crude reserves are brimming as many customers and shipping companies bend to U.S. sanctions and avoid doing business with Venezuela.
The state oil firm PDVSA has had to recently cut back production and halt blending of the super heavy crude at some joint ventures with foreign oil firms, Reuters reports, quoting industry sources, inventory data, and internal PDVSA documents its reporters have seen.
The U.S. sanctions essentially forbid U.S. companies and persons dealing with Venezuela and its state oil firm. Tightening the screws on Nicolas Maduro’s regime, U.S. President Donald Trump signed in early August an executive order freezing all assets of the Venezuelan government in the United States. The move may lead to the U.S. imposing secondary sanctions against companies doing business with the Maduro government.
As a result, PDVSA’s list of clients has shrunk significantly, while shipping companies have become increasingly reluctant to supply Venezuela with vessels to ship its crude oil to foreign markets for fear of losing their insurance. Russia’s Rosneft has reportedly become the key middleman trader for Venezuelan oil in the world.
With clients and shippers unwilling to work with PDVSA, crude stockpiles in Venezuela are so high that the state oil firm could be just days away from having to suspend oil production at some oil fields in the east, a PDVSA executive told Reuters.
This would be another heavy blow to Venezuela, whose production has been continuously falling over the past few years.
According to the latest figures by OPEC’s secondary sources, Venezuela’s oil production dropped by 43,000 bpd from July to just 712,000 bpd in August. This compares to 1.911 million bpd production in 2017 and 1.354 million bpd for 2018. Since the end of 2018, Venezuela has lost around 600,000 bpd of crude oil production, due to the U.S. sanctions and the economic collapse in which the country doesn’t invest in maintenance and repair of oil infrastructure and facilities.
Unlike Venezuela’s expectations that it would recover its oil production by the end of 2019, as recently expressed by its oil minister Manuel Quevedo, IHS Markit said in July that output could drop to below 500,000 bpd next year. According to IHS Markit, Venezuela’s oil industry has deteriorated so much since 2014 that any recovery would be a long time coming.