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Once among the top three crude oil-producing countries in the
world, Venezuelan crude oil production has drastically plummeted.
IHS Markit estimates show that oil production in July declined by
62% from a year ago to approximately 250,000 b/d - a far cry from
its 2017 output of 2 MMb/d. As a founding member of the
Organization of the Petroleum Exporting Countries (OPEC),
Venezuelan output is a fraction of what it was in the past. Its
demise has had little impact on overall global oil balance, owing
to the ample production capacity around the world.
The main reason for the long-term decline in Venezuela
production is epic mis-management and low levels of investment. The
2020 oil price collapse limited domestic oil storage, and US
sanctions have exacerbated the decline of Venezuela's oil industry
in the past 6 months. Loss of export markets has also been a key
issue. On 12 March 2020, Venezuela's main trading partner, Rosneft,
was sanctioned by the U.S. Department of Treasury. This was
followed by a "food for crude" program with Libre Abordo, but it
has also been sanctioned by the US. Additionally, on 22 April 2020,
Chevron was given until 1 December to leave Venezuela, during which
it cannot export crude from the country. Since 2017, export volumes
to Venezuela's three key markets - mainland China, India, and
United States - has declined approximately 1.5 MMb/d. Initially,
heavy sour crude shortages impacted these markets, but complex
refineries have since replaced Venezuelan crude with Middle Eastern
(Iraqi Basrah Heavy), Canadian Western Canadian Select, and other
Latin American crude (Mexican Maya and Colombian
Castilla/Vasconia). A combination of heavy, sour crude supply
tightness and the general drop in crude prices, the light-heavy
price spread has narrowed with the Maya-LLS differential falling
from $12/bbl in 2018 to $4/bbl in July. Venezuela's oil production
is nearing a total collapse, but a long-term recovery is still
possible for the country with the largest crude reserves on
earth.
