Thumbing through Venezuela’s Rolodex

The letter P surely takes up a thick wedge of PdV chief executive Eulogio Del Pino’s virtual Rolodex. PetroEcuador, Petrobras, Pemex, Petronic, Petronas. Wouldn’t Putin be there too?

On a dog-eared card among the N’s we might find Iranian state-owned oil company NIOC, one of the many fellow producers that Del Pino has lobbied since last year  — with mixed results — to sign a deal to freeze oil production as a way to resuscitate prices. Judging from current Venezuelan government sentiments, it was Iran more than Saudi Arabia that rained on the parade of oil producers that gathered in Doha, Qatar, in April. And it is Tehran, now freed of US and EU nuclear-related sanctions, that is “betraying” Caracas in the Asia-Pacific oil market, or so Venezuelan officials tell Argus.

I is for India. India has been a centrepiece of Venezuela’s decade-old strategy of targeting Asia-Pacific markets at the expense of the US, the traditional outlet for Venezuelan crude.  At least until recently, Indian refiners had been taking around 400,000 b/d of PdV’s Merey 16, a blend of extra-heavy Orinoco crude and lighter grades that are largely imported in the face of PdV’s declining light and medium crude production. But NIOC is starting to nudge out PdV, which can’t compete on price for its longer-haul barrels.

Then there’s C for China, which nominally takes about 600,000 b/d of Venezuelan crude. But, unlike India, part of the supply goes to pay down billions of dollars in oil-backed loans from Beijing to Caracas. And Chinese state-run oil companies resell some of the Venezuelan crude to the market. So Iran’s return to China probably has less of an impact on Venezuelan supply, which is lucrative for China and money-losing for Caracas.

Towards the back of that Rolodex is the US, a card that PdV dusted off again this year. Despite Venezuela’s ostensible Asia-Pacific focus, the US remains PdV’s largest market, taking about 700,000 b/d of crude. But that figurative phone call wasn’t to sell more of the Venezuelan crude that Iranian supply is starting to displace in Asia-Pacific. It was to buy US light crude that PdV needs to make its Merey blend.

Ultimately, Iran’s market resurgence might be a blessing in disguise for Caracas, because PdV in its current state can’t go on paying for the imported light crude and naphtha it needs to transform thick Orinoco oil into Merey. Beyond the indispensable blendstocks, PdV faces an acute electricity supply crisis that is hurting its upstream and downstream operations, even as its decrepit maritime terminals constrain loadings.

This is why Venezuela needs Opec to send a robust signal to the market at its 2 June meeting in Vienna. But if Saudi Arabia’s new come-what-may stance prevails, Caracas could be in for another disappointment.

Venezuelan production and exports are trending downwards, signalling the potential for a once-unthinkable disruption of PdV supply contracts. That could happen around the time that Venezuela and PdV can no longer service their substantial overseas debt. After that, the next number Caracas dials might be the International Monetary Fund.

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