OPEC Speaks Out Against Venezuelan Oil Embargo as PDVSA Reroutes Exports to Asia

Mérida, July 3, 2019 (venezuelanalysis.com) – The secretary general of the Organisation of Petroleum Exporting Countries (OPEC) blasted US-led sanctions against Venezuela’s oil industry.

Speaking days before the 176th meeting of the OPEC Conference, Mohammed Barkindo explained that “For us in OPEC, the sanctions imposed on two of our founders and big oil producers for the international market [Venezuela and Iran], are sanctions for all of us, because if you take these two countries out of the equation that will affect the entire OPEC.”

Barkindo likewise endorsed a diplomatic solution towards ending the sanctions which have caused uncertainty in the oil market, stating that “dialogue will help resolve issues and differences.”

OPEC and oil producing non-OPEC members, grouped into the OPEC+, also agreed to extend production caps at their meeting in Vienna, Austria. These caps have seen some oil prices rise by as much as 25 percent this year, and will now be extended until March 2020. Venezuela, Libya and Iran are, however, exempt from these restrictions.

The US Treasury Department has imposed successive rounds of unilateral sanctions against Caracas, targeting different sectors of the Venezuelan economy, limiting access to financial markets and imposing hurdles on commercial transactions, including oil deals. Venezuela’s oil sector, responsible for 95 percent of foreign currency income, has been particularly affected, with financial sanctions levied against state oil company PDVSA in August 2017 and an oil embargo imposed in January.

Following Washington’s recognition of self-declared “Interim President” Juan Guaido on January 23, a freeze was also imposed on Venezuela’s US-based oil assets, chief among them PDVSA’s US subsidiary, CITGO, which supplied large amounts of diluents needed for crude processing to Venezuela. US authorities have since looked to transfer control of Venezuelan state assets to Guaido’s team.

Guaido named a parallel board of directors for CITGO in February, a move which state-run oil company PDVSA is currently disputing by asking that the Delaware Chancery Court confirm that the Venezuelan state controls Citgo and two related companies. Guaido’s representative in Washington, Carlos Vecchio, is reportedly being investigated over accusations of embezzlement of CITGO funds.

While a number of US authorities have already ruled in favour of recognising Guaido and his team as Venezuela’s political and diplomatic representatives in the country, including in the battle over the Venezuelan embassy in Washington, the legal status of Venezuelan assets in US territory has yet to be settled.

Venezuela looks to Asian markets for oil sales

Speaking at the OPEC meeting, Venezuela’s Oil Minister Manuel Quevedo reaffirmed his country’s priority in recovering oil production and avoiding US sanctions.

According to Quevedo, “Our plan is to recover. We have internal strategies… One of them is to continue blending the product we export the most, Merey crude. We will continue blending our own crudes and will also import crude.”

Merey heavy crude is the preferred product of the Asian markets, to which Venezuela has increasingly looked following the oil embargo.

PDVSA records and Refinitiv Eikon documents quoted by Reuters Tuesday indicate that China has now become the main destination for Venezuelan oil, with Beijing receiving 656,000 barrels per day (bpd) in June, around 59 percent of the Latin American country’s total output. This figure marks a pronounced increase from the 233,000 bpd shipped to the Asian giant in February, but still below the one million bpd target set by both governments last year. Venezuelan crude exports to China form part of oil-for-loan agreements in the context of credit and investment projects established in the Caribbean country.

However, the documents suggest that oil sales to India have dropped to 200,000 bpd, or 18 percent of Venezuela’s output, while those to Singapore sit at 10 percent. While the Venezuelan government looked to significantly increase sales to India following January’s embargo, US pressure on New Delhi has seen commercial ties cool down. The report also suggests that no Venezuelan crude was refined in US-based refineries, following the end of a three month winding down period for the embargo. Shipments to Europe are reported as remaining stable at 85,000 bpd.

Venezuelan oil production also seems to be offering positive signs, reportedly rebounding in June, increasing 26 percent to 1.1 million bpd, up from 874,000 in May. Venezuela’s oil production decline has been significantly exacerbated by the impact of US economic sanctions, with crude output dropping by 30 percent, from an average of 1.911 million bpd in 2017 to 1.354 million in 2018, following the August 2017 financial sanctions imposed by the Trump administration.

Output fell further in 2019 following the January oil embargo as well as nationwide electricity blackouts in March, falling to just 740,000 bpd in March.

According to Reuters, June imports of fuel and diluents to Venezuela also continued to diminish – for the third consecutive month – to 117,100 bpd, down 20,000 bpd from May and nearly half the 200,000 bpd imported in March. These imports are mostly from Spanish company Repsol or Russia’s Rosneft. PDVSA has been forced to rely upon fuel imports to satisfy internal demand, estimated to be around 250,000 bpd, as well as honour existing export contracts. Fuel and diluent import deals and payments have also been targeted by Washington, resulting in parts of the country suffering from acute fuel shortages in recent times.

Edited by Ricardo Vaz from Caracas.