Venezuela’s Oil Output Drops Sharply Amid Continued Unrest

Venezuela registered its sharpest monthly drop in oil production yet, as unrest continues over political divisions and economic difficulties.

The Organization of the Petroleum Exporting Countries on 13 June reported that oil output for the South American country sunk by 120,000 barrels per day (bpd) to 2.37 million bpd. The last time monthly output declined by such a large degree was in 2003 when workers at state-owned energy company Petróleos de Venezuela SA (PDVSA) went on strike and ground the domestic oil industry to a halt.

“This is very surprising,” said Francisco Monaldi, a Latin American energy policy fellow at Rice University, to the Wall Street Journal (WSJ). “If you want to point to the biggest problem, it is cash flow, which for PDVSA now looks worse than we had imagined.”

Finances for PDVSA have been hit by the low price of oil as well as mismanagement by the government of the oil-rich country. Major oil services companies such as Halliburton and Schlumberger have threatened to slash operations in Venezuela as the country struggles to pay multibillion-dollar debts with partners across numerous industries.

A subsidiary of PDVSA last month purportedly offered service contractors $2.5 billion in debt as part of a swap plan for dollar bonds. The alleged swap would have fallen short of the $21 billion PDVSA claims to owe its providers. Furthermore, Eurasia Group analyst Risa Grais-Targow explained to the WSJ that crude from the Orinoco basin requires a price above $28 a barrel for PDVSA and its partners to make a profit on. Currently the break-even price for Venezuelan oil is approximately $21 a barrel.

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Venezuela relies on oil for nearly all of its income, but the price of crude has nosedived from an average of $88 per barrel in 2014 to $35 per barrel by mid-May 2016. This has helped to fuel a myriad of economic problems including having the world's highest inflation rate at 180 percent, shortages of basic goods, and sporadic power shortages.

President Nicolas Maduro last month declared a state of emergency to combat the economic war he claims has been spearheaded by foreign states and right-wing forces in Venezuela. This has worsened already heightened tensions between pro-government factions and the opposition attempting to organize a referendum that would recall Maduro.

By Erwin Cifuentes for Oilprice.com

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