Oil output in Venezuela edges ahead as prices ease off

Venezuela's Oil Industry at the Crossroads: Navigating US Sanctions

Caracas, August 16, 2024 (our website) - After a slight output surge in July, the Venezuelan oil industry is once again tossed around by the erratic waves of US sanctions.

The latest OPEC monthly report shows Venezuela's output was measured at 852,000 barrels per day (bpd) in July, a jump from June's 845,000 bpd. This figure marks a new five-year production high. However, state oil company PDVSA reported a slightly higher output, with 928,000 bpd in July compared to 922,000 bpd in June. Authorities in Caracas continue their pledge to exceed the 1 mil bpd target.

Amidst this progressive production, exports saw a steep 26% drop, according to Reuters, with shipments impeded by power outages, reduced stocks, and cargo loading delays.

Venezuela's oil industry has been in the crosshairs of US economic coercion since 2017. Over the years, the US Treasury Department has levied financial sanctions, an export embargo, secondary sanctions, and various other measures in an attempt to choke off the South American nation's main source of income.

In October 2023, the Biden administration issued General License 44 (GL44), granting PDVSA a six-month waiver that enabled them to sell crude oil to global customers without resorting to significant discounts or unreliable intermediaries. However, the expiration of GL44 in April saw the reimposition of wide-ranging sanctions, with Washington arguing that the Maduro government was not adhering to an electoral agreement with the hardline opposition.

The reimposition of these sanctions has affected crude prices, with the Merey flagship blend—preferred by Asian customers—dropping for a fourth consecutive month. The gap between Merey and the WTI benchmark returned to its pre-GL44 range, hinting that PDVSA might be forced to step up discounts to offload cargoes.

While many companies such as Chevron, Repsol, and Eni have been allowed to continue—and even expand—their joint projects with PDVSA, Indian Refiner Reliance has been the only corporation among dozens of applicants to receive US approval to import Venezuelan crude oil. To cope with sanctions' restrictions, PDVSA is looking for more favorable conditions to attract investment.

Apart from joint ventures with foreign corporations, the Maduro government has vocalized an intention to revamp legislation and boost private sector participation in providing oilfield services. National Assembly Deputy William Rodríguez expressed that a consensus exists to reform the hydrocarbon legislation to "reestablish a significant part of oil services to the private sector."

Hugo Chávez drove a series of legislative projects to assert the country's sovereignty in the energy sector, necessitating that PDVSA hold majority stakes in all oil joint ventures and run all oilfield operations. However, the legal landscape is now shifting as the country grapples with US sanctions and the pressing need for investment and modernization in its oil industry.

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US Sanctions on Venezuela's Oil Industry: An Overview

The US sanctions targeting Venezuela's oil industry are intended to weaken financial support to the Maduro regime. Here is an overview of the sanctions currently in place, their impact on oil production, exports, and partnerships:

Sanctions Overview- Secondary Tariffs: Introduced under Executive Order 14245 on March 24, 2025. This measure threatens a 25% tariff on all goods imported into the United States from any country importing Venezuelan oil indirectly or directly, starting April 2, 2025.[3][4]- General License 41B: Issued by the Office of Foreign Assets Control (OFAC), extending the wind-down period for certain transactions related to Chevron's joint ventures in Venezuela until May 27, 2025.[3][4]

Impact on Oil Production and Exports- Production Challenges: Sanctions have created significant challenges for Venezuela's oil production due to restricted access to essential services and equipment, affecting the country's ability to maintain and grow production levels.[1]- Exports: Despite these challenges, Venezuela's exports to the US peaked at 250,000 bpd in January 2025, the highest level since sanctions were imposed.[1] However, many other countries like China, the largest buyer of Venezuelan oil, continue to face potential economic penalties for purchase.[5]

Partnerships with Foreign Corporations- Chevron's Involvement: Chevron is one of the few US companies still operating in Venezuela due to special licenses that have been periodically extended or modified.[3][4]- Global Partnerships: The threat of secondary sanctions and the possibility of increased tariffs on goods exported to the US complicates partnerships with foreign corporations, leading to a shift in global supply chains and elevated diplomatic tensions.[3][5]

Venezuela's energy sector, aiming to exceed 1 million barrels per day (bpd) production, has been struggling once again with the impact of US sanctions, as shown by the 26% drop in exports.
Measures like General License 44, which allowed PDVSA to sell crude oil without significant discounts, have expired, leading to potential increased discounts and cargo offloading challenges.
To navigate US sanctions and attract investment, PDVSA is consider calibrating its strategy to include revamped legislation for enhancing private sector participation in providing oilfield services, similar to collaborations in sports, where cooperation improves performance.