Venezuela’s unprecedented oil supply collapse (20180329)


Production is likely to flirt with 1m barrels a day as the country’s problems mount
Justin Jacobs 29 March 2018

When Opec’s Gulf powers, led by Saudi Arabia, decided to keep the taps open in November 2014, flooding an already oversupplied market with crude, their target was America’s shale producers. In pushing prices down, Saudi Arabia hoped to sap momentum from the booming tight oil industry and impose discipline on what they saw as profligate drillers. Shale bowed but it didn’t break, and has since roared back to new highs. Venezuela’s oil industry hasn’t been so resilient, to say the least. That 2014 decision was a fateful one for Caracas and helped break the back of Venezuela’s energy sector. Caracas was in a precarious financial position already, but at the time there was growing optimism among state oil company PdV brass that long-stalled Orinoco projects were finally gathering momentum. I visited the Orinoco in early 2015 with PdV’s chief executive at the time Eulogio del Pino—since arrested as part of a purge of the company’s senior leadership. He was keen to point to resurgent drilling activity, new pipelines being laid down around joint-venture heavy oilfields, and fresh plans to get more Orinoco oil out of the ground and onto markets. PdV’s foreign partners had been given more autonomy, output was ticking up and there were plans to add more. Given the company’s miserly track record over the previous 15 years, this may all have been wishful thinking, and even if oil prices hadn’t crashed, the hurdles were going to be formidable. But as Saudi Arabia kept pumping, and oil prices kept falling, the bottom fell out for Venezuela. Years of economic and oil policy mismanagement left Caracas exposed and the country is now paying the price.


Politicised data

Outside of times of war, there’s no parallel to what the oil market is seeing out of Venezuela. Getting a precise picture of Venezuela’s output is difficult, given the figures are highly politicised. But the scale of collapse is immense.

Production has fallen by 1m barrels a day to 1.7m b/d—a drop of nearly 40% since president Nicolás Maduro took office in April 2013, according to figures the country reports to Opec. A major chunk of that—around 600,000 b/d-was from 2017 alone as conditions around the oil industry deteriorated. Secondary market sources, which rely largely on tracking tankers, paint an even starker portrait, putting output at around 1.6m b/d. Even that, however, may overstate true production levels. Some close to the industry say that 1.6m b/d figure double-counts certain barrels that are used to dilute Orinoco heavy oil exports, and actual production could be below 1.5m b/d.


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