Finance

Pending Chinese help, Venezuelan oil production falls to lowest level since 1949

According to production figures published by OPEC, Venezuela’s state-owned oil company Petróleos de Venezuela, S.A. (PDVSA), continues to have a record-breaking year, and not in the way they would hope. In April, the socialist government in control of the world’s largest oil reserves failed to have its oil company produce at a rate any higher than it did 70 years ago.

This April, PDVSA output averaged 1.436 million barrels per day (bpd) — its lowest production level since 1949. Furthermore, in October, a Venezuelan tanker collided with the country’s primary oil port, causing a delay in delivery of five million barrels of crude. PDVSA has already struggled with capacity issues this year after Conoco-Phillips enforced a court ruling awarding it $2 billion in compensation for assets seized when Venezuela nationalized two of its projects.

US sanctions have contributed to a general glut of funds necessary to make repairs and resume shipping. The sanctions are certainly not the cause of Venezuela’s troubles, but they provide a convenient scapegoat for the Maduro regime. For his part, the president of Venezuela has sought the help of the People’s Republic of China, which is not bound by the restrictions imposed by the sanctions.

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According to production figures published by OPEC, Venezuela’s state-owned oil company Petróleos de Venezuela, S.A. (PDVSA), continues to have a record-breaking year, and not in the way they would hope. In April, the socialist government in control of the world’s largest oil reserves failed to have its oil company produce at a rate any higher than it did 70 years ago.

This April, PDVSA output averaged 1.436 million barrels per day (bpd) — its lowest production level since 1949. Furthermore, in October, a Venezuelan tanker collided with the country’s primary oil port, causing a delay in delivery of five million barrels of crude. PDVSA has already struggled with capacity issues this year after Conoco-Phillips enforced a court ruling awarding it $2 billion in compensation for assets seized when Venezuela nationalized two of its projects.

US sanctions have contributed to a general glut of funds necessary to make repairs and resume shipping. The sanctions are certainly not the cause of Venezuela’s troubles, but they provide a convenient scapegoat for the Maduro regime. For his part, the president of Venezuela has sought the help of the People’s Republic of China, which is not bound by the restrictions imposed by the sanctions.

China has pledged $5 billion in support of the Venezuelan state and its floundering oil industry. In addition, President Maduro plans to boost oil exports to the People’s Republic as a part of a larger plan to get the Venezuelan economy back on its feet by boosting oil production by one million bpd from its June average this year.

Even if he achieves this goal, production will lag behind PDVSA production in 2017, when the company’s daily average production level was 2.9 million bpd. Venezuela has a long way to go if they want return to the peak production levels that sustained its socialist state; production levels most recently achieved in the 1990s.

And that is the root of Venezuela’s troubles. The country built a massive socialist state bureaucracy on the backs of one export — a lucrative export, to be sure. But one that, for all its value, could not by itself sustain the leviathan Venezuelan state and its manifold programs once crude prices fell and other regional players like the United States began to boost production. Venezuela made matters even worse by nationalizing foreign-owned assets — they were left with the machines and material but none of the expertise of the Conoco-Phillips of the world, who were no longer working the most lucrative deposits.

Aid from the Chinese will help stall the collapse of the Venezuelan economy, but time and the continuing privation of its people may be the only thing that can force the necessary reforms to bring the South American country out of the black hole of economic disaster toward which it is falling. For the sake of its people, let us hope that the event horizon of that singularity has not yet been crossed, and that reform will come to Venezuela in time.

About Alex Benson View All Posts

Alex Benson writes about financial markets and the US economy, interpreted through the lens of his experience as an economist, lawyer, and avid reader and student of history. Alex graduated from law school in 2016 and is a practicing lawyer at his day job. The rest of his time is spent reading, writing, or in the weight room; when not practicing law or reading and

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