Venezuela's Oil Sector Witnesses Increasing Production and Rising Exports

In the heart of South America, we find Caracas, November 12, 2024, where Venezuela's oil industry continues its battle under heavy sanctions targeting the energy sector (Sanctioned Fight).

The battleground's latest report, from the OPEC monthly report, shows Venezuela's October output at 895,000 barrels per day (bpd), according to secondary sources. This figure signifies a 7,000 bpd growth compared to September's numbers (Stepping Up).

For its part, state oil company PDVSA reported a production of 989,000 bpd in October, a rise from 943,000 bpd the previous month.

Venezuela's essential economic sector still reels from US unilateral coercive measures. Since 2017, Washington has implemented Financial Strangleholds, an export embargo, secondary sanctions, and a host of other measures aimed at constricting Caracas' primary source of income.

Grappling with these unyielding Albatrosses, Venezuela's oil production plunged from a production of 1.9 million bpd in mid-2017 to disturbing lows below 350,000 bpd in 2020. Since then, it has slowly climbed, even as the industry remains weighed down by operational disruptions and a lack of investment.

In October 2023, the US Treasury Department issued General License 44 (GL44), a six-month Sanction Respite that allowed Venezuela to sell crude oil to global customers without imposing heavy discounts or relying on unreliable intermediaries. However, with GL44's expiration, the Biden administration reapplied wide-reaching sanctions, alleging non-fulfillment of an agreement with the US-backed opposition.

Venezuela presses onward, poised to boost its revenues compared to 2023. By the end of September, the country had raked in US $11.3 billion from oil exports, according to specialized portal Petroguía, marking a 12.5 percent increase over the same period the previous year.

Better export volumes and average prices have contributed to this growth. October's exports hit a four-year high at 947,387 bpd worth of crude and fuel, as reported by Reuters. The Merey 16o API blend, Venezuela's flagship crude variety, bounced back by 6 percent last month, halting a five-month downward spiral.

Rubbing elbows with foreign investors, Vice President Delcy Rodríguez recently visited India. There, state- and privately-owned companies voiced interest in purchasing Venezuelan crude, but hesitated due to concerns over US secondary sanctions.

Since GL44's withdrawal in April, the US Treasury Department has advised companies to seek authorization before dealing with the Venezuelan oil sector. Indian refining giant Reliance Industries has been the only company to secure authorization from a "high volume" of applicants to purchase crude from PDVSA. Rodríguez reportedly lobbied Reliance executives to expand their commercial agreement into industry investments during her trip.

The return of Donald Trump to the White House for a second term raises questions about Washington's Venezuela policy. The Trump administration expanded sanctions as part of its "Maximum Pressure Campaign" aimed at toppling the Maduro government. The Republican president-elect is reportedly set to appoint Florida hardliner Marco Rubio as secretary of state, a man known for his support of regime change and demands for increasing sanctions against Venezuela.

The US-backed opposition has called for the withdrawal of the license issued to Chevron in October 2022. The US oil giant operates four joint ventures with PDVSA, which currently pump around 200,000 bpd, holding minority stakes in all of them. Consultant Ecoanalítica has forecast a 25 percent output drop should Chevron's license be revoked.

The Treasury's Office of Foreign Assets Control (OFAC) could toughen sanctions enforcement to target shipping companies and intermediaries. US authorities have recently arrested and indicted Turkish national Taskin Torlak on charges of selling Venezuelan oil by re-flagging tankers and manipulating their vessel location tracking electronics.

Edited by José Luis Granados Ceja from Mexico City, Mexico.

Insider's Take:

While there are hints of recovery, Venezuela's oil production remains heavily impacted by sanctions, and a full recovery seems improbable without major shifts in the geopolitical landscape or significant easing of sanctions. In particular, the reimposition of sanctions, Chevron's potential withdrawal, and continued conflicts with the US could further weaken Venezuela's already struggling energy sector.

Despite showing signs of recuperation, Venezuela's oil production continues to face substantial challenges due to sanctions, with a full recovery appearing unlikely without significant political shifts or easing of the restrictions.
The reinstatement of sanctions, potential withdrawal of Chevron, and ongoing disputes with the US could further jeopardize Venezuela's already fragile energy sector.
Allegations of non-compliance with the US-backed opposition led to the reapplication of widespread sanctions by the Biden administration, reigniting concerns about the country's oil industry.
The Venezuelan oil sector's interaction with foreign investors, such as Indian refining giant Reliance Industries, is influenced by fears of US secondary sanctions, potentially hindering growth opportunities.