Caracas outruns the barrel counters

Back in the 1990s, Venezuela, like some other Opec countries, used to fudge its crude production numbers to avoid accusations of breaching its Opec quota. Until recently, Caracas was still blurring the data, not to sneak extra barrels into the market, but to keep the market from knowing how much its production was falling.

Over the past few months, Venezuela looks to have come clean on the data —  so clean that even secondary sources like Argus are racing to knotch down their estimates of Venezuelan output. It’s a far cry from the days when official data routinely exceeded secondary source estimates.

Every month now, there are fewer Venezuelan barrels to count. According to official government data cited by Opec in its January 2018 monthly oil market report issued this week, Venezuela lost another 216,000 b/d of crude production in December. This brings monthly output to just 1.621mn b/d, the lowest level since the mid-1980s, not including a 2002-03 labor strike, and far below its Opec quota of 1.977mn b/d.

The December data, on top of losses of 118,000 b/d in November and 130,000 b/d in October 2017, shows the decline is accelerating.

At just 1.6mn b/d, officially, Venezuela is producing half of what it used to in the 1990s, and the decrepit state of the industry points to further upstream erosion in 2018.

State-owned PdV has no money to arrest natural declines of at least 20pc a year. Oil services contractors like Schlumberger have given up on recovering overdue debt. So have most of PdV´s joint venture partners in the once-vaunted Orinoco heavy oil belt. Bondholders are waiting to see if sporadic payments by PdV and the Republic will eventually reach their pockets in spite of a string of defaults.

No surprise that PdV faces a growing risk of cargo seizures in the Dutch Caribbean, where the company´s strategic network of oil infrastructure is turning into a potential legal trap for the distressed firm´s exports, the lifeblood of the government.

Saddled with US financial sanctions that impede access to new debt, PdV is hobbling along with a demoralized and desperate workforce, many of whom are fleeing to neighboring countries to survive.

One might surmise that Venezuela is exposing the rapid loss of production as a perverse way of driving up oil prices. Although the market is rising toward $70/bl, other factors are at play, and heavy crude discounts to lighter grades are not noticeably narrowing in the US Gulf coast market yet.

That could change if the economic catastrophe unfolding here spills over onto its neighbors like Colombia, where more than half a million Venezuelans have already fled over the past three years. More so if the crisis draws outside military intervention, as Venezuela´s former planning minister and Harvard professor Ricardo Hausmann is now openly calling for.

What cannot be ruled out is a long and painful unraveling of a country that has traded its oil market prestige and relevance for a top spot on the list of failed states.

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