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Amid a desperate economic and humanitarian crisis in Venezuela, its socialist leader Nicolas Maduro is trying to shore up support from the few allies it has left, and has had state oil firm PDVSA buy foreign oil worth US$440 million and sell it at below-market prices on friendly credit terms to Cuba, Reuters reports, quoting internal company documents it has reviewed.
Despite its severe cash crunch and oil industry collapsing, Venezuela has been buying foreign oil and shipping it directly to its regional ally Cuba, instead of sending its own oil there.
The oil PDVSA has sent to Cuba was Russian Urals, suitable for Cuba’s refineries that were built with Soviet equipment. According to the documents reviewed by Reuters, the Venezuelan company purchased the oil from Chinese, Russian, and Swiss firms, but not in cash, rather, in commitments to deliver other crude oil cargoes, adding to the pile of debts of the Venezuelan state and PDVSA.
According to the documents reviewed by Reuters, Venezuela’s PDVSA had bought the crude oil for up to US$12 a barrel more than the selling price to Cuba. Yet, Cuba may never repay in cash for the discounted barrels of oil because Venezuela has been accepting goods and services from its regional ally in exchange for crude oil under a deal that the late leaders of the two countries, Fidel Castro of Cuba and Hugo Chavez of Venezuela, signed back in 2000.
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Venezuela has claimed that it only imports oil to dilute it with its heavy grades to export them, but according to the documents that Reuters reporters have reviewed, between January 2017 and May 2018, PDVSA has been buying crude oil at market prices to deliver at discount prices to allies in cargoes that never call at Venezuelan ports.
“Maduro is giving away everything he can because these countries’ backing, especially from Cuba, is all the political support he has left,” a former top Venezuelan government official told Reuters on the condition of anonymity.
Meanwhile, Venezuela’s crude oil production continues to plunge—in April alone, Venezuela lost 41,700 bpd of oil production and its output averaged 1.436 million bpd last month, according to OPEC’s secondary sources. This compares to average oil production of 2.154 million bpd for 2016 and to 1.911 million bpd for 2017.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.