Venezuela: Oil prices hit an over three-year high in April
May 15, 2018
The average price of Venezuela’s mix of crude oil reached USD 64.2 per barrel (pb) in April, the highest level in over three years. The reading was above the USD 59.5 pb recorded in March, representing a 7.8% month-on-month increase in oil prices. April’s print reflected a combination of restricted supply, strong demand and rising geopolitical tensions in the Middle East. In year-on-year terms, Venezuelan oil prices were up 45.5% in April.
Oil prices have gradually climbed since June 2017, largely as a result of strict compliance among OPEC members to a production cut agreement. The cartel will meet in June to decide whether to prolong the deal, which is set to expire at the end of this year. Meanwhile, oil production in Venezuela has declined significantly amid economic and political turmoil, lending further support to prices. According to data recently released by OPEC, output in Venezuela fell to 1.44 million barrels per day (mbpd) in April, down from March’s revised 1.48 mbpd (previously reported: 1.49 mbpd).
Venezuela’s oil sector has been severely hit by chronic underinvestment and mismanagement in recent years. As the government has increasingly demanded more funds to mitigate the economic crisis and service debt obligations, the capital allocated to maintain fields and develop new projects has been drastically reduced, strongly contributing to subdued oil production. Adding to the industry’s dire state, the recent USD 2.0 billion arbitration award granted to ConocoPhillips and the company’s subsequent efforts to seize the state oil firm PDVSA’s assets in the Caribbean could further impair exports and much-needed oil revenue in the near-term.
Author: Javier Colato, Economist