On May 21st President Donald Trump signed a new executive order prohibiting certain oil-related transactions with Venezuela. GlobalData, a leading data and analytics company, argues that the new sanctions are symbolic in comparison to the more targeted sanctions previously considered that would limit exports of Venezuelan crude oil to the U.S.
Adrian Lara, Oil & Gas Analyst at GlobalData stated:
“Crude oil production in Venezuela is practically falling at an average of 10% every quarter and has been since mid-2017. A scenario with oil production in the country losing at least another 500,000 barrels per day by the end of the year is not unrealistic. Having full additional sanctions imposed would certainly send a strong geopolitical message from the U.S. at the risk of generating more instability in the world supply markets.”
GlobalData also forecast that Venezuelan crude oil production would fall to around one million barrels per day by the end of 2018. This is a steep decline from the three million barrels per day that Venezuela produced in 2011.
Platts reported this week that Venezuela has already warned eight international customers that it wouldn’t be able to meet its crude oil commitments to them in June. Venezuela’s state oil company PDVSA is contractually obligated to supply 1.495 million barrels per day to those customers in June, but only has 694,000 barrels per day available for export.
Impacted U.S. oil companies reportedly include Chevron, “Conoco” and Valero. I suspect “Conoco” is really Phillips 66, the refining arm spun out of ConocoPhillips in 2012.
Venezuela also reportedly has a severe backlog of crude deliveries at its main terminals, and this could temporarily halt PDVSA’s supply contracts if they are not cleared soon. The company has told some customers it may declare force majeure if they do not accept new delivery terms, including higher-cost and riskier seaborne transfers. Brent crude prices moved higher on the news.
But if the GlobalData forecast is correct, then the temporary interruption of Venezuela’s exports may be permanent, as they will be plunging toward zero by the end of the year.