By Anatoly Kurmanaev and Kejal Vyas
CARACAS, Venezuela -- Venezuela's oil output is collapsing,
making it unlikely the South American country can benefit from
rising global prices for oil and increasing the chances of a debt
default this year that could turn its economic crisis into a
humanitarian disaster.
Production fell 440,000 barrels a day to 1.8 million barrels in
the 12 months to November, according to official statistics. The
nearly 20% decline so far ranks among the deepest in the industry's
history. Russia's output slid 23% during the fall of the Soviet
Union and Iraq's output dropped by the same share after the 2003
U.S. invasion, according to data from OPEC and BP Statistical
Review.
The collapse has been triggered by a deep economic crisis and
widespread corruption and mismanagement, compounded by a purge of
state-run Petroleos de Venezuela SA by President Nicolás Maduro
that has paralyzed the oil giant. U.S. sanctions have scared off
some of the last remaining investors.
"In Venezuela there is no war, nor strike, but what's left of
the oil industry is crumbling on its own," said Evanán Romero, a
former PdVSA director.
Since the country exports little else, Venezuela's centrally
planned economy relies on oil exports for 95% of its hard currency,
according to the latest official data. That means the output
decline will add more pressure to the government, which has
drastically cut back on imports of everything from machinery to
food and medicines to make ends meet. The economy has shrunk an
estimated 40% in the past four years. Malnutrition is spreading
among the young and elderly while health officials report a
resurgence of illnesses ranging from malaria to diphtheria.
Venezuela is also entering the world's first episode of
hyperinflation in a decade. Prices rose an estimated 2,600% last
year, the country's National Assembly estimates. Nearly one in four
factories didn't reopen after Christmas, according to the local
industry association. And at least four people have died in looting
outbreaks across the country in recent weeks.
This week, the state oil company's new chief, National Guard
Gen. Manuel Quevedo, blamed the downturn on sabotage and terrorist
attacks by the opposition, without providing any evidence. He said
production has stabilized and will grow to 2.5 million barrels per
day this year.
Most analysts, however, expect Venezuela's production to
continue falling, adding to the country's economic woes.
By this year's end, output could fall to 1.3 million barrels a
day, according to Francisco Monaldi, a Venezuelan energy expert at
Rice University.
"The only discussion right now is how much is it going to
decline by. There is no talk of a turnaround," said Luisa Palacios,
analyst at consultancy Medley Global Advisors in New York.
The output decline means Venezuela has been the only major oil
producer to not benefit from rising crude oil prices. The value of
the Venezuelan oil export basket rose 25% last year on the back of
stronger global demand and shrinking inventories. But this windfall
was wiped out by lower output and the rising cost of oil products
imported by PdVSA to aid its operations.
Brokerage Torino Capital forecasts that the value of Venezuelan
oil exports will fall about three billion this year to $26.5
billion. As recently as 2012 the country earned $93 billion from
oil exports.
The country has already been struggling to pay interest and
principal on its $60-billion foreign debt. A full-blown default
would deepen the country's woes, potentially putting oil sales at
risk.
PdVSA and the central government are in default on more than
$700 million of bond payments. The state oil company hasn't made
any interest payments for a month, raising fears that creditors
could start seizing oil shipments as compensation.
Last week, a tanker carrying Venezuelan crude was detained in
the Caribbean island of Curaçao at the request of an unidentified
group of investors seeking $30 million in back payments from
Venezuela, according to diplomats familiar with the matter
"If Venezuela's oil shipments become a target, that would be the
worst possible scenario for the country's oil industry," said
Artyom Tchen, an Oslo-based oil analyst at consultancy Rystad
Energy.
The crisis has created a vicious cycle of underinvestment and
falling output, which cripples the economy further. PdVSA's
operational spending has fallen two thirds from 2014 to 2016,
according to the latest official data.
The cash crunch comes as Mr. Maduro faces elections sometime
this year. As oil production falls, it will become increasingly
difficult for the president to maintain handouts of imported food
to supporters, which has kept his ruling party in power amid an
economic meltdown, said Siobhan Morden, strategist at Nomura
Securities.
Part of the problem is that some 1.3 million barrels a day of
Venezuelan oil is already spoken for between the domestic market
and pre-paid supply and debt deals with allies Russia, China and
Cuba, said Mr. Monaldi. That leaves precious little to sell in the
open market.
Making matters worse, Mr. Maduro's government jailed almost 70
senior managers on graft allegations in the past three months,
appointing half a dozen generals with no industry experience to run
the firm.
(END) Dow Jones Newswires
January 18, 2018 05:44 ET (10:44 GMT)
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