Venezuela: Oil sector outlook remains grim despite higher oil prices in November
December 4, 2017
Oil prices continued to gain ground in November, hitting the highest price since July 2015. The average price of Venezuela’s mix of crude oil traded at USD 54.9 per barrel (pb), which was 8.7% higher than in the previous month (October: USD 50.1 pb). Oil prices have risen in recent weeks on the back of production cuts by key producers and recovering global demand. The gradual rebalancing of the oil market is expected to continue going forward. On 30 November, major producers in OPEC and Russia agreed to extend the current oil output cut deal to the end of 2018.
Despite the much-awaited recovery in oil prices, the price remains too low to mitigate Venezuela’s ongoing economic crisis. Moreover, oil production has fallen steeply this year amid insufficient investment, poor maintenance of oil fields and the rationing of electricity. The latest production data from OPEC revealed that output in Venezuela fell to an over two-decade low of 1.86 million barrels per day (mbpd) in October, down from 1.91 mbpd in September.
The country’s oil sector is also suffering from a dramatic purge by President Nicolás Maduro, who has fired or arrested several of the industry’s top players in recent months. Maduro claims that the shakeup is designed to stem widespread corruption; however, analysts have criticized the move as an attempt to consolidate power ahead of next year’s election. Many of the replacements that Maduro has installed have little to no experience in the oil sector, which could spell more bad news for the battered industry. On 3 December, Maduro named army general Manuel Quevedo, a former housing minister, to lead both state oil company PDVSA and the country’s energy ministry. Quevedo has no known experience in the energy sector and will have to tackle major issues such as a debt restructuring, dwindling output and corruption scandals.