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Venezuela - one of the staunchest supporters and promoters of OPEC’s oil production cuts - has said it would start reducing supply by 95,000 bpd beginning January 1, complying with its commitment to the total cartel cuts.
OPEC’s much-hyped deal aimed at reducing global oversupply and ‘stabilizing’ oil prices stipulates that Venezuela cut its output to 1.971 million bpd from 2.067 million bpd. As part of the agreement, OPEC members and 11 non-OPEC producers pledged to cut production by almost 1.8 million bpd, of which 1.2 million bpd would come from OPEC and 558,000 bpd - from non-cartel producers, including Russia with a 300,000-bpd promised gradual cut in the first half this year.
Venezuela’s state-held company PDVSA, which made the announcement of the cuts by instruction from the oil ministry, said that it and its subsidiaries would begin to “implement a reduction of the volumes of the main crude oil sales contracts without prejudice to PDVSA’s international contractual commitments and in accordance with the terms and conditions of current contracts”.
PDVSA barely escaped bankruptcy two months ago and if OPEC’s cuts manage to lift oil prices, they would give a lifeline to the struggling oil company and Venezuela’s oil revenues, which are almost all of its foreign currency revenues.
According to Venezuelan Oil Minister Eulogio Del Pino, the removal of 1.8 million bpd from the oil market would reduce supply in around 100 days by between 180 million and 200 million barrels, which would lead to a rebalance of inventories. This, in turn, would see Brent prices at around US$60-65, which would mean that Venezuelan crude would trade between US$45 and US$55, Del Pino said, as quoted by the Energy Ministry.
So Venezuela, whose economy is in total collapse, is desperate to see oil prices rise and has no incentive to cheat with production cuts. Ironically, it has to rely on OPEC and non-OPEC producers which it had tried so hard to get on board with cuts to also stick to their promises.
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.