Oil production in Venezuela slowly advances as crude prices decrease

Updated Hustle:

August 16, 2024 - Breaking news from Venezuela's oil scene: The oil industry took a tiny but noticeable step forward in July.

According to the OPEC monthly report, Venezuela's output climbed to 852,000 barrels per day (bpd), a five-year production high and a slight increase from the previous month's 845,000 bpd. PDVSA, the state oil company, reported even better numbers, announcing a production of 928,000 bpd in July, up from 922,000 the month prior.

Despite this positive news, exports suffered a shocking 26% drop, as reported by Reuters. Power outages, reduced stocks, and cargo loading delays all contributed to the decline in exports.

Venezuela's oil industry has been under intense pressure due to US economic coercive measures, which have been in effect since 2017. These measures include financial sanctions, an export embargo, secondary sanctions, and other restrictive actions designed to strangle the South American country's primary revenue source.

In October 2023, the Biden administration issued General License 44 (GL44), a six-month waiver that allowed PDVSA to sell crude to global customers without discounts or the need for unreliable intermediaries. However, the waiver expired in April, and the US reimposed wide-reaching sanctions. The government argued that the Maduro administration was not complying with an electoral agreement with the hardline opposition. Caracas has repeatedly denounced these actions as "terrorism."

In the lead-up to Venezuela's July 28 election, US officials threatened to adjust sanctions based on the election's outcome. Despite this, the Maduro government was proclaimed the victor, with 52% of the vote, though US-backed candidates rejected the results and accused the government of fraud.

The uncertain political climate and the prospect of new sanctions have caused Venezuelan crude prices to fall, with the Merey flagship blend dropping for a fourth consecutive month. The gap between Merey and the WTI benchmark has returned to pre-GL44 levels, suggesting PDVSA has been forced to offer larger discounts to secure sales.

To combat these challenges, the Maduro government has been working to attract foreign investment. PDVSA recently entered into partnerships with Trinidad and Tobago's NGC, British multinationals BP, and Shell, to explore offshore natural gas reserves. In these deals, PDVSA does not hold a stake in the projects, with revenue coming in the form of taxes and royalties.

Last week, PDVSA signed an agreement with Nigerian-owned Veneoranto to certify two major gas deposits. Venezuela currently holds the eighth-largest proven natural gas reserves globally.

In an effort to boost private sector participation, Venezuelan authorities have expressed a desire to reform hydrocarbon legislation. National Assembly Deputy William Rodríguez, a member of the legislative body's Energy and Oil Commission, stated that there is "consensus" to reform the hydrocarbon legislation to "reestablish a significant part of oil services to the private sector." The reform could potentially take place before the end of the year.

Former Venezuelan President Hugo Chávez implemented a series of legislative projects to secure the country's control over the energy sector. The existing legal framework requires that PDVSA maintain majority stakes in all oil joint ventures and operate all oilfield operations. However, it seems the Maduro government is looking to change this approach to encourage private investment.

Venezuela aims to boost its energy sector, announcing partnerships with foreign companies like Trinidad and Tobago's NGC, BP, and Shell, to explore exportable energy resources, such as offshore natural gas reserves.
In an attempt to counterbalance the challenges faced by the Venezuelan oil industry, the Maduro government has been focused on calibrating legislation to attract more foreign investment, particularly in the hydrocarbon sector.
Weighing the prospect of future sanctions, the Maduro administration has been engaging in sports diplomacy, establishing an agreement with Nigerian-owned Veneoranto not only to certify two major gas deposits but also to foster stronger relations in various sports domains.