Venezuela: Venezuelan oil prices recover on expectations for output freeze agreement
April 13, 2016
In March, the average price of Venezuela’s mix of crude oil rose a solid 22.6% over the previous month, reaching USD 29.7 per barrel. Despite the increase, oil price continue to hover at all-time lows. According to the latest report from the Organization of Petroleum Exporting Countries (OPEC) that was released on 13 April, Venezuelan oil production edged down from 2.32 million barrels per day (mbpd) in February to 2.30 mbpd in March.
Oil prices recovered somewhat following the announcement made in February by the governments of Venezuela, Saudi Arabia, Qatar and Non-OPEC member Russia to freeze output at January's near-record level of product. The announcement, which helped to stem the slide in oil prices, was seen as an opportunity to establish a price floor and halt the oil price rout. However, more recent talks among major oil producers for a prolonged output freeze collapsed in mid-April after Saudi Arabia and Iran failed to reach an agreement. The failure of the April meeting will weigh on oil prices in the short-term as oil production exceeds demand and dissipates the possibility of a coordinated response by oil-producing countries to increase prices through production cuts.
The Venezuelan government relies heavily on oil revenues to balance its budget and to meet its international debt obligations. Oil accounts for about 95% of Venezuela’s exports and more than half of public sector revenues. The plunge in oil prices is putting additional pressure on the country’s finances as USD 8.3 billion in foreign debt payments are due this year alone. While the 2016 budget assumes an oil price of USD 40 per barrel, analysts have pointed out that the government needs a breakeven oil price that is well above USD 100 per barrel and the latest developments indicate that oil prices will not recover at least until the second half of this year.