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Venezuela’s oil output in the first quarter of the year has fallen more than investors had expected, with a production level expected to remain at a lower level for the rest of the year, a report by an energy consultancy company has revealed.
According to Miami-based IPD, output fell 188,000 barrels a day in the first quarter, down to 2.59 million barrels a day, making this the first time since 2008 that oil output has fallen across every region in the country.
The falling output is due to drilling delays, insufficient maintenance, theft and diluent shortfalls. “They have not kept up on maintenance and it is showing everywhere: oil production, electricity problems. The place is falling apart,” Ray Zucaro, RVX Asset Management’s chief investment officer said.
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The Guri dam, which produces about three-quarters of the country’s electricity, is dangerously close to shut-down status, which would exacerbate Venezuela’s current meltdown. And as Oilprice reported last week, inflation in Venezuela is in the triple digits, cash reserves have all but been exhausted, and it is questionable whether it will be able to meet its debt obligations over the next couple of years.
As the report’s findings went public, Venezuelan bonds plummeted on Tuesday, with the price falling 0.88 cent to 41.07 cents on the dollar—an unsurprising result given its already troubled state of affairs
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Based on the first quarter’s assessment, IPD has revised its 2016 output estimate for Venezuela. "Our original forecast for 2016 annual production of 2.62 million b/d could still be achieved with an oil price hike in the 70-80 US$/bbl range during the second half of the year," the consultancy said in a statement.
If the forecast turns out to be correct, the South-American country would lose almost $5 billion in revenue, IPD further noted in its report, because Venezuela’s export revenue comes mainly from crude shipments (95 percent)—contributing to Venezuela’s most severe recessions in decades.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com