Released February 11, 2019 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Crude oil prices rose by a few dollars per barrel in the days after the U.S. imposed sanctions on Venezuela's oil industry January 28. But those modest gains quickly slipped away, a sign of Venezuela's diminished importance as an oil superpower.
Venezuela has the world's largest crude oil reserves, estimated at 300 billion barrels, but production has fallen steadily in recent years, from about 3.3 million barrels per day (BBL/d) in 2006 to about 1.1 million BBL/d in 2018, according to data from the Organization of the Petroleum Exporting Countries (OPEC). Industry sources expect production to fall by another 300,000 to 500,000 BBL/d because the fields are not being properly maintained.
Critics say the state-owned oil company, Petróleos de Venezuela SA (PDVSA), is riddled with corruption and mismanagement, and political leaders have looted the company for years. Venezuela was a founding member of OPEC. About half of its crude oil production is exported to the U.S., about 500,000 BBL/d.
The U.S. sanctions, which included exemptions for several U.S. companies working in Venezuela, were designed to pressure the country's president, Nicolás Maduro, to relinquish power. His re-election as president in 2018 was widely condemned as a sham. The sale of crude oil is virtually the only source of the hard currency coming into Venezuela.
Analysts said the loss of the U.S. market would force Venezuela to sell its crude to other countries, possibly in Asia, at a heavy discount. The crude already is discounted compared with global grades like Brent and West Texas Intermediate because Venezuela's crude is thick and has high viscosity, requiring the addition of a diluent before it can be refined.
Some analysts said the U.S. sanctions, coupled with an OPEC production cut of 1.2 million BBL/d, could drive up crude oil prices. For more on this, see January 21, 2019, article - Crude Oil Prices Still Soft, Despite Production Cuts from OPEC, Russia, Saudi Arabia. But weak global economic growth, coupled with ever-rising production from the Permian Basin, appear to have combined to blunt the economic impact of either move. Retail gasoline prices are under $2 a gallon in 10 states, according to GasBuddy. Last year, heading into the summer driving season, gasoline prices averaged about $2.82 per gallon, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.)
Click on the image at right for a chart of weekly average national gasoline prices since 2008.
The U.S. sanctions were not designed to prop up oil prices. Rather, by depriving Venezuela of its main source of hard currency, the U.S. appears to have been aiming at triggering a non-violent regime change. However, so far the military has backed Maduro. Another politician proclaimed himself president, but that power grab appears to have fizzled. The Venezuelan crude that has not been sold to the U.S. has been used as non-cash barter with other countries to pay off Venezuela's obligations.
In a subsequent move, the U.S. gave American companies until April 28 to buy oil and oil products from PDVSA. For some time, all revenue from U.S. companies buying Venezuelan crude has gone into a blocked, interest-bearing account. The U.S. said it will release those funds, estimated at $7 billion or more, once Maduro steps down. After April 28, however, companies will be forbidden from buying Venezuelan crude or oil products without an exemption from the U.S. government.
PDVSA owns Citgo Petroleum Company (Houston, Texas), the fifth-largest U.S. refiner. Its refineries in Corpus Christi, Texas, Lake Charles, Louisiana and Lemont, Illinois, have combined processing capacity of approximately 749,000 BBL/d. Venezuela's crude is refined by Citgo as well as other refiners in the Gulf Coast that have been configured to process that nation's crude. Citgo and Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) were among the top American importers of Venezuelan crude last year, according to industry sources.
Citgo reportedly denied it was considering a Chapter 11 bankruptcy filing. Efforts to contact the company were unsuccessful.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Venezuela has the world's largest crude oil reserves, estimated at 300 billion barrels, but production has fallen steadily in recent years, from about 3.3 million barrels per day (BBL/d) in 2006 to about 1.1 million BBL/d in 2018, according to data from the Organization of the Petroleum Exporting Countries (OPEC). Industry sources expect production to fall by another 300,000 to 500,000 BBL/d because the fields are not being properly maintained.
Critics say the state-owned oil company, Petróleos de Venezuela SA (PDVSA), is riddled with corruption and mismanagement, and political leaders have looted the company for years. Venezuela was a founding member of OPEC. About half of its crude oil production is exported to the U.S., about 500,000 BBL/d.
The U.S. sanctions, which included exemptions for several U.S. companies working in Venezuela, were designed to pressure the country's president, Nicolás Maduro, to relinquish power. His re-election as president in 2018 was widely condemned as a sham. The sale of crude oil is virtually the only source of the hard currency coming into Venezuela.
Analysts said the loss of the U.S. market would force Venezuela to sell its crude to other countries, possibly in Asia, at a heavy discount. The crude already is discounted compared with global grades like Brent and West Texas Intermediate because Venezuela's crude is thick and has high viscosity, requiring the addition of a diluent before it can be refined.
Some analysts said the U.S. sanctions, coupled with an OPEC production cut of 1.2 million BBL/d, could drive up crude oil prices. For more on this, see January 21, 2019, article - Crude Oil Prices Still Soft, Despite Production Cuts from OPEC, Russia, Saudi Arabia. But weak global economic growth, coupled with ever-rising production from the Permian Basin, appear to have combined to blunt the economic impact of either move. Retail gasoline prices are under $2 a gallon in 10 states, according to GasBuddy. Last year, heading into the summer driving season, gasoline prices averaged about $2.82 per gallon, according to the U.S. Energy Information Administration (EIA) (Washington, D.C.)
The U.S. sanctions were not designed to prop up oil prices. Rather, by depriving Venezuela of its main source of hard currency, the U.S. appears to have been aiming at triggering a non-violent regime change. However, so far the military has backed Maduro. Another politician proclaimed himself president, but that power grab appears to have fizzled. The Venezuelan crude that has not been sold to the U.S. has been used as non-cash barter with other countries to pay off Venezuela's obligations.
In a subsequent move, the U.S. gave American companies until April 28 to buy oil and oil products from PDVSA. For some time, all revenue from U.S. companies buying Venezuelan crude has gone into a blocked, interest-bearing account. The U.S. said it will release those funds, estimated at $7 billion or more, once Maduro steps down. After April 28, however, companies will be forbidden from buying Venezuelan crude or oil products without an exemption from the U.S. government.
PDVSA owns Citgo Petroleum Company (Houston, Texas), the fifth-largest U.S. refiner. Its refineries in Corpus Christi, Texas, Lake Charles, Louisiana and Lemont, Illinois, have combined processing capacity of approximately 749,000 BBL/d. Venezuela's crude is refined by Citgo as well as other refiners in the Gulf Coast that have been configured to process that nation's crude. Citgo and Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) were among the top American importers of Venezuelan crude last year, according to industry sources.
Citgo reportedly denied it was considering a Chapter 11 bankruptcy filing. Efforts to contact the company were unsuccessful.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook-Twitter-LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
