This third week of May consolidated a trend towards the recovery of oil prices, after the sharp fall in March and April. Brent crude was quoted at $36 per barrel on wednesday May 20th, the highest price since March. Simultaneously, the WTI marked its highest price of the month at $34.63 per barrel last Thursday May 21st. The International Energy Agency (IEA) reports a rise in futures prices for the US benchmark of $8 per barrel from the previous week. Both the Brent and the WTI markers have recovered significantly since the beginning of the price crisis in March. The recovery has been of 47% and 67% of their value respectively.
BRENT FALL AND RECOVERY
WTI FALL AND RECOVERY
The Brent and WTI references quoted at $34.91 and $32.95 per barrel respectively at the close of the European markets on Friday May 22nd. These prices represent an increase of 2.57% and 4.85% respectively compared to last Monday’s price. At the same time, they represent a 6.50% and 11.6% compared to the prices on April 30th when expectations of oil cuts on May 1st began.
OIL PRICES MAY 2020
The market is reacting optimistically to the implementation of production cuts of 9.7 million barrels of oil per day by the OPEC+ countries. These production cuts came into effect on May 1st. The markets have reacted positively to the high level of commitment to compliance with the cuts from both Saudi Arabia and Russia as well. This commitment was ratified by the oil ministers of both countries. It was confirmed with strict adherence to the large production cuts agreed by each country.
Likewise, the market considers the announcement made by the monarchies of the Persian Gulf: Saudi Arabia, Kuwait, and the United Arab Emirates to be a clear step towards the reduction of the oversupply. The announcement consists in making an additional cut to what was agreed on in the framework of the OPEC+ of 1 million, 100 thousand and 80 thousand barrels of oil per day respectively with effect from July 1.
The most important aspect to highlight is the political commitment of OPEC+ member countries to comply with the cutback agreements, as well as the announcements of the Persian Gulf monarchies. There is no doubt now that the price war between Russia and Saudi Arabia is over as well as the commitment of the leading OPEC countries to eliminate overproduction and stabilize the market. This is what is reflected in the price recovery.
The completion of the agreed cuts by the 23 OPEC+ countries and the additional effort by Saudi Arabia, Kuwait, and the United Arab Emirates and their impact on the market will be reviewed by OPEC at an extraordinary meeting scheduled for June 10. According to the Secretary-General of the Organization, Mohammed Barkindo, the adhesion of the member countries to the production cut commitments, from which Iran, Libya, and Venezuela are exempt, has been satisfactory.
In addition to these cuts there is Norway’s announcement of a 300,000 barrel per day cut in oil from June 1st, as well as a drop in production from the U.S. and Canada.
The collapse of production in North America
The fall of the oil production in North America has been more pronounced and faster than some analysts expected.
Some analysts predict a drop in Canadian oil production of about 1 million barrels of oil per day. According to the IHS Markit, Canadian Natural Resources, Suncor Energy and Husky Energy announced a reduction in oil production on May 8th. This reduction is of 700,000 barrels of oil per day of heavy crude oil from the Athabasca oil sands.
At the same time, the US Department of Energy (DOE) estimated that the decline in oil production in the US will be of 2 million barrels per day by the end of 2020.
The United States Energy Information Administration (EIA) has already reported a drop in oil production of 92 million barrels of oil per day in the first quarter of the year. It has estimated a drop at the end of this year of 94 million barrels of oil per day as well. This drop is mainly due to the low prices of WTI compared to the high costs, especially in traditional areas and mature fields of its national production.
One index that is of public information and that is directly related to the drop in oil production activity in the US is the number of active drills. This week the IEA’s Drilling Productivity Report, based on information reported by Baker Hughes, indicates that the number of active drills in the US has fallen 56% (433 drills) since March 17.
DECLINE IN DRILLING ACTIVITY IN THE USA
The number of active drills in the US has fallen by 433 drills between March 17th and May 12th from 772 drills to 339 drills. This fall in active drills mainly affects the three main oil-producing regions: Permian, Eagle Ford, and Bakken, thus hitting oil production from shale oil. This is particularly the case in the Permian regions where 405 platforms normally operate and only 175 are currently active, the Eagle Ford region with a 64% decline in South Texas, and the Bakken region with a 67% decline in Montana and North Dakota.
DECLINE IN DRILLING ACTIVITY BY OIL REGIONS IN THE U.S.
The drop in drilling activity continues to affect the production of shale oil in the United States. The production of shale oil will decrease by 197 thousand barrels per day in June compared to the previous month. This is the lowest in the last two years which makes it the largest area of reduction of oil and gas production. Rystad Energy estimates that the largest drop in production of shale oil in the U.S. will happen in May and that its recovery will be in the next quarter. TheWorld Energy Trade explains in an information note the that companies in this sector will take measures or «Frac Holidays» to disable the fracking equipment. These measures will be taken for the second quarter of 2020.
The production of shale oil is very sensitive to the price of oil because of its high production costs and the fact that it is an activity based on the use of hedge funds. This makes it dependent on the capacity of managing the financial debt contracted by the producers which an issue that the U.S. administration faces. This is the reason why the U.S. Federal Reserve implemented the Main Street Lending Program. The program addresses the collapse of small and medium-sized oil companies in this country.
The number of active drills in the U.S. has historically followed the changes in WTI prices with a delay of about four months. However, the current drop in the number of active drills followed the recent decline in oil prices much more rapidly than in the past, as it can be seen in the following chart from the EIA. The spot price of West Texas Intermediate began in March 2020 at $46.78 per barrel and ended the month at $20.51 per barrel; most of the decline occurred in the first half of the month.
CORRELATION BETWEEN WTI AND DRILLING ACTIVITY IN THE USA
Therefore, U.S. production has been one of the most affected by the crisis. Unlike Saudi Arabia, Russia, and other producers, U.S. production is more expensive requiring prices of at least $34 per barrel. The closing of wells or drilling activities has a greater impact on mature deposits such as traditional areas or more complex geological formations like shale oil.
COLLAPSE OF OIL PRODUCTION IN THE USA
The recovery of these volumes of oil production, which the U.S. Secretary of Energy Dan Brouillette estimates at two million barrels per day for 2020, as well as the strategic position of the U.S. as the world’s leading oil producer, or at least, with energy independence, will depend fundamentally on the economic and financial environment of the sector but to an equal or greater extent, on the technical complexities of the century-old oilfields and the shale sands of the U.S.
The recovery of these volumes of oil production will fundamentally depend on the economic and financial environment of the sector as mentioned before. However, it will depend, in an equal or greater extent, on the technical complexities of the century-old oilfields and the American shale oil and fracking complexities. The United States is facing challenges to maintain its strategic position as the world’s leading oil producer, or at least, be a country with energy independence.
International demand for oil continues to be affected at historic levels by the impact that the COVID-19 pandemic has had on the economy. The economy has entered into a recession affecting to a greater extent the large industrialized economies. The Euro Zone has fallen by 6%, the UK by 8.5%, the USA by 5.2%, and China by 6.8% in the first quarter of the year. The demand has been also affected by the measures to restrict air traffic and mobility taken by governments around the world to confine and close borders.
This situation is the reason why OPEC, the International Energy Agency, and the U.S. Energy Information Administration have agreed that in 2020 the fall in demand will be historical. They estimate the fall will be at 10% to locate it in a range between 90-92 million barrels per day. This represents a fall of 10 million barrels per day of consumption.
COLLAPSE OF WORLD DEMAND OF OIL 2020
The International Energy Agency (IEA) has further reduced its demand forecasts in May’s Short-Term Energy Outlook (STEO). It forecasts that world demand will be 92.6 million barrels a day by 2020, a reduction of 8 million barrels a day. This estimation is based on macroeconomic projections by Oxford Economics and IHS Markit.
The big three
The three major consumers and importers of oil worldwide: USA, China, and India continue to be affected by containment measures, economic recession, or uncertainties regarding recovery and economic results for this year 2020. These countries concentrate 40% of the world’s oil demand.
THE WORLD’S THREE BIGGEST OIL CONSUMERS
The North American economy continues to be impacted by the growing number of people infected and killed by COVID-19. As of Friday May 22nd, the country had 1,601,534 infected and 96,007 deaths. Unemployment continues to set record levels, the latest report from the U.S. Department of Labor indicated that there was an increase of 2.4 million requests for unemployment assistance this week. These numbers bring the country’s unemployment rate to an estimated 36 million since February or 14.7%.
Projections indicate that the U.S. economy will have a 20-30% drop by the second quarter according to an economic advisor to President Donald Trump. Demand for oil will decline by 23.1 million barrels per day during the second quarter of 2020. On Friday May 22nd, the President of the U.S. Federal Reserve Jerome Powell estimated that the U.S. economy would recover by the end of 2021 «assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year. “people will have to be fully confident. And that may have to await the arrival of a vaccine (to COVID-19)”.
DECLINE IN OIL DEMAND IN THE USA
India continues to be affected by the containment measures and the recession of the economy with an estimated economic growth for this year of only 1.2%. This country has a consumption of 4.4 million barrels of oil per day. However, it showed a dramatic fall of 53% of its demand in April with 1.8 million barrels per day.
DECLINE IN OIL DEMAND IN INDIA
Moreover, although China seems to have successfully overcome the spread of the COVID-19, its economy is beginning a recovery marked by uncertainty. On Friday May 22nd, the Chinese Prime Minister Li Keqiang indicated in his annual message to the National People’s Congress that the government could not set a growth goal for the economy this year. The government will focus their objectives on employment and stimulus policies.
ECONOMIC DOWNTURN IN CHINA
Some agencies have predicted that the economy will grow by 1.8% after the 6.9% drop in China’s economy during the first quarter of this year. On the other hand, regarding oil consumption in China, the China National Petroleum Corporation (CNPC) estimates that oil demand in the country will fall 5% this year. This is after a growing recovery due to the lifting of restrictions on mobility and confinement by the COVID-19 pandemic. The oil consumption in China is estimated at about 13 million barrels per day. However, it suffered a 20% drop during May.
ESTIMATED OIL DEMAND IN CHINA
A recovery in oil demand is expected in the second quarter of 2020, according to this week’s analysis by the Energy Information Administration (EIA). This recovery is due to the gradual revival of economies, as well as of air transport worldwide. Cuts in oil production play an important role as well since they will allow the reduction of the oversupply of oil in the market.
The recovery of global demand for crude oil will be slow and with many uncertainties especially with Coronavirus spreading in Latin America and Africa. Furthermore, the possibility of a «second wave» is cause for alarm in the large countries that have already been hit by COVID-19 or that are emerging from the «peak» of its impact. Therefore, even if some restrictions are removed, precedents such as that of China suggest that normalization will be slow while we wait for new periods of quarantine.
Furthermore, the impact on the global economy with a fall of 3.4%, in addition to the slow restart of the large industrialized economies make it possible to predict a slow recovery throughout this year and in 2021. The manufacturing activity, mobility, the interruption of supply chains and trade, the bankruptcy and financial issues of enterprises will make the recovery of the economy slow.
BALANCE BETWEEN SUPPLY AND DEMAND
The cuts in oil supply to the market are beginning to restore the balance of oil demand. These cuts comprehend the OPEC+ cuts and other voluntary and involuntary cuts in oil production.
OIL CUTS vs. FALL IN DEMAND
The International Energy Agency (IEA) forecasts that from May 1st, the production of the OPEC+ countries will fall to 24 million barrels per day in June. This is due to the production cut agreed by these countries. According to their agreement, there will be an increase in production starting on July 1st. The IEA estimates that this increase in production will be up to 28.5 million barrels per day during the second half of 2021.
CHANGE IN GLOBAL OIL PRODUCTION (2015-2021)
On the other hand, Rystad Energy considers that May will be an important month for the market. It will have an adjustment in the balance between supply and demand of crude oil which reported 26 million barrels per day in April. By contrast, they estimate that by May the production will be reduced by half with 13 million barrels per day. This will allow the progressive release of storage, which will be adjusted so that demand increases progressively and the reduction of oil production has an effect from the first of May.
This agency forecasts that the supply of crude oil will be of 92.8 million barrels in May. The supply will be 91 million barrels a day in June – respectively 6 and 8 million barrels less than the supply in April. On the other hand, the agency estimates that demand will increase to 79.2 million barrels per day in May and 85.1 million barrels per day in June after reaching a low of 71.8 million barrels per day in April. However, it stresses that storage will continue to be a major constraint to the price recovery.
As we have said in previous reports, the increase in crude oil inventories, both in commercial stocks and in strategic reserves, will be an element that will act in favor of keeping oil prices down. All of the first and second quarters of the year, with an emphasis between March and April, the market was flooded with cheap oil. This cheap oil went directly to the storages causing a severe restriction in their capacities. This resulted in price alterations as happened last April 20th when the WTI reached negative values when it monopolized about 81% of the Cushing Oklahoma’s storage operational capacity. This situation caused traders to detach themselves from oil contracts one day before their expiration date. There was nowhere to store oil. It was necessary to pay for someone to take volumes of cheap oil that were not in demand.
The process of «draining» the oil into inventories or storage will begin as the supply of oil is reduced, as it has happened since May 1st. The draining process will also begin to happen as the demand for oil is restored. The increase in the demand for oil is currently starting to happen in China and is expected to continue happening towards the second half of this year.
Inventory levels in commercial storage in OECD countries have given them 23 days of coverage above the average of the last five years. The same is happening in US commercial storages where 15 days of coverage are reported above the average of the last five years. Not much information exists on the level of commercial stocks in China and India as well as other countries. However, it is estimated, or there have been indications, that they were at maximum levels. One of the major indications of this phenomenon has been the increase in floating storage, i.e. the use of oil tankers as storage. This has considerably increased freight and transport costs. Consequently, they will be the first to «drain», which will constitute a clear indicator that oil demand is increasing.
The gradual “draining” of the storage will be reflected in the first instance in floating storage as demand is restored. However, when the oil production strats to increase again these volumes will compete with the cheap oil that is drained from the inventories. This situation will cause the price to remain low.
During OPEC or OPEC+’s next meeting it will be necessary to evaluate a strategy to drain the inventories and reduce the days of coverage together with a simultaneous increase in production levels. The low existing demand will need to be satisfied with the inventories’ cheap oil and the new production levels.
The oil producing countries need to be able to restore the balance between supply and demand in order to recover the price. The objective should be recover the price at the levels we saw at the beginning of March.
Close coordination between oil producing countries will be essential. They will have to make a sacrifice in maintaining the quota system or reducing their production levels despite their own financial needs. This is essential to restore and defend the price until the market is completely stable.
OPEC and the International Energy Agency will issue their respective monthly reports with updated data on the levels of storage worldwide. Therefore, these reports should be expected to continue monitoring this aspect.
The US Energy Information Administration has been issuing a weekly report on the behavior of commercial inventories in the US since the beginning of the COVID-19 crisis.
The weekly report of the Energy Information Administration (EIA) of May 20th indicates a decrease of 5 million barrels in U.S. storage from the previous week, excluding strategic storage. This positions the storage at 526.5 million barrels. The values indicate that the days of coverage continue to be above the average of the last five years although a slight drainage has been noted. This drainage will have to be monitored if it remains as a trend in order to estimate its behavior towards the closing of this year.
OIL INVENTORY LEVELS IN THE USA
The volume of crude oil in floating storage reached 200 million barrels of oil in the first quarter of 2020 according to a report by the Frontline Group published on May 20th, 2020.
On the other hand, the Energy Trade Agency reports that by March more than 70 VLCC (Very Large Crude Carrier) vessels of between 1-2 million barrels of oil capacity were chartered for these purposes. However, the Agency is beginning to notice a slight reduction after last week Vortexa Ltd reported that storage was reduced from 176 to 155 million barrels on May 15th. Even so, the volume stored by May 15th would be double that recorded in early March.
Bloomberg news agency reports that more than 10.8 million barrels are stored in the North Sea area which is a record number.
Mexico is positioned as the country with the largest volume of floating storage
in the Alphatanker report of the first quarter of 2020 published on May 20th. The country has 32 MR2 tankers anchored in the ports of this country which reserve an estimated 11 MB of products, mainly gasoline. The main reason behind this is the fall in domestic demand for refined products.
On the other hand, the cost of chartering oil vessels increased from $50,000/trip to $350,000/trip since April.
There is also a large amount of crude oil on ships en route to their destinations, which can take more than 45 days. Such is the case of Saudi Arabian ships, with the oil produced in March bound for the east coast of the USA, in the Gulf of Mexico. There are more than 20 VLCCs with oil from Saudi Arabia that are expected to arrive at the end of June to the US coast in the Gulf of Mexico. This is based on the information available on the monitoring of marine transport.
The OPEC reported in April that, according to secondary sources, the Venezuelan oil production is at 622,000 barrels per day. This constitutes a drop of 2,378,000 barrels per day compared to December 2013 – a drop of 79.2% in 7 years. There is a severe fuel shortage crisis as well.
There is neither gasoline, nor diesel, nor gas.
The collapse of the national refinery system and gas processing plants has left the country with no fuel for the domestic market.
PDVSA has not been able to satisfy the domestic demand for fuel oils. There is no gasoline, diesel, or liquefied petroleum gas, which are essential to supply the domestic demand for fuels. This is despite the fact that the entire country is in quarantine and there is an economic activity fall of 63% between 2015-2020 before COVID-19.
It is estimated that the demand for fuel in the country is currently around 120 thousand barrels per day. This represents a drop of 81% or 546,000 barrels compared to 666,000 barrels per day in 2014 reflecting the collapse of the economic activity in the country.
DISTRIBUTION OF REFINING PRODUCTS
Venezuela produced 1,072 thousand barrels of fuel per day according to data from PDVSA’s audited reports, at the end of 2014. This allowed the country to meet the internal demand of 666 thousand barrels a day and export 406 thousand barrels per day.
PRODUCTION OF THE REFINING SYSTEM VENEZUELA ISLA
Today, the national refining system is practically paralyzed with minimal operating levels. The Paraguaná Refining Complex, the Palito Refinery, and the Puerto La Cruz Refinery are in a technical standstill as a result of government intervention, the persecution and imprisonment of managers and workers. The government imposition of managers without technical credentials nor the necessary expertise to operate these large and particular refinery complexes is another cause of the technical standstill. Additionally, budgets for investments, maintenance, costs, and expenses of the refineries were diverted and cut since December 2014, which led to a rapid decrease in operating capacities.
COLLAPSE OF THE NATIONAL REFINING SYSTEM
The government is apparently trying to reactivate some refineries. The first announcements or rumors have revolved around the reactivation of gasoline production at the El Palito refinery. However, according to the workers’ leaders, the attempts have been unsuccessful and they have been cannibalizing parts from other complexes (of different technologies and configurations) to use there instead.
An attempt has also been made to reactivate the Paraguaná Refinery Complex, using parts, inputs, and personnel from the Islamic Republic of Iran. Again, the most absolute secrecy surrounds this operation. This secrecy has given much room for lucubration and hypotheses regarding the true objective of the Iranian presence in PDVSA’s facilities. It is the first time this has happened in the Venezuelan oil industry.
The reality is that the technical and managerial personnel with the expertise and knowledge are either imprisoned or persecuted by the government, eager to intervene and militarize the industry. This is the case of Engineer Jesús Luongo, a professional with a long career in the oil industry, who pursued postgraduate studies at the IFP in France. He was responsible, along with Iván Hernández – one of the assets of our oil industry -, for reactivating the Paraguaná Refining Complex after it was completely paralyzed during the oil sabotage between December-February 2002-2003. Today, the former is still in prison and without trial, whereas the latter left the company during one of the persecution raids that began in 2014. The same happened to the former minister and president of PDVSA, Engineer Nelson Martínez, who had all the qualifications and professional experience needed, and was responsible for the reactivation of the El Palito refinery. He was imprisoned by the government and left to die in custody. These are criminal and illegal actions by the government which, ultimately, are reflected in the operational collapse of the company.
These Venezuelan refinery complexes work with technology licensed or owned by international companies such as Exxon, Shell, Texaco. This is done by design since they were built more than 60 years ago and required inputs and expertise that normally exist in the country, or can be acquired in the international market. This was done when the U.S. imposed sanctions on PDVSA in 2010, restricting our access to technology packages from U.S. companies. It is important to point out that during my tenure at the head of PDVSA between 2004 and 2014, our refining system never collapsed, nor was there ever a lack of gasoline or fuels that the country requires.
FUEL PRODUCTION IN THE COUNTRY 2001-2020
NATIONAL REFINING SYSTEM
The government is importing volumes of gasoline and other fuels from different sources and companies, using traders to circumvent the sanctions imposed by the United States. This is undoubtedly a problem derived from the government’s inability to manage PDVSA. The government is not able to guarantee the supply of the internal market of fuels and the needs of the population for gasoline, diesel, and gas. Our company and our refinery system are designed to supply all the country’s energy capacities and export the surpluses. The company operated this way until 2014.
The loss of CITGO
We have pointed out in opinion articles that the loss of the CITGO refinery complex in the USA was a disaster foretold.
We have already explained how this complex acquired between the mid-1980s and the 1990s was the product of a strategy called «internationalization» of PDVSA. This strategy was nothing more than taking assets from the oil industry out of the jurisdictional control of the Venezuelan state with the manifest objective of «processing Venezuelan crude», which did not happen.
The CITGO refinery system became an excuse to send oil at discounts of up to 40% to Venezuelan territory. Those assets became «hostages» in foreign territories of the international companies that came to the country in the framework of the “Oil Opening” in the Orinoco Oil Belt Association Agreements.
During the period between 2004-2012 some refineries, terminal and pipeline systems were sold. These revenues were reported to the National Executive, partially compensating the State for the heavy losses suffered by the country’s income when, at the worst moment of the economic crisis of the 80s and 90s, PDVSA made millionaire investments abroad. During this time PDVSA also granted massive discounts that affected our oil revenues in the period when the economy was most in need.
In 2014, we proposed from PDVSA the government to initiate a process of bidding and receiving offers to sell the Citgo refineries, tying the operation to long-term contracts for the supply of Venezuelan oil to maintain this market niche. This was proposed given the national situation of the dangers that threatened the economy and the complications in international politics. Although offers of up to 15 billion dollars were made (resources that would have been used to create a fund to prevent the economic crisis and stabilize the economy) the operation was discarded by the government and could not be carried out.
On the other hand, the government of Nicolas Maduro has been negligent in handling international lawsuits and litigations, which have been filed against the Venezuelan state. This has especially happened in the non-oil area.
It is the case of a lawsuit filed in the United States by the Canadian company Crystallex, a company whose rights in the country were revoked in 2008. They were revoked for not producing a single gram of gold in the immense gold reserves of Las Cristinas. This lawsuit prospered mainly due to the mishandling of a case that was clearly favorable to the interests of the country.
However, on November 21st 2017, the national government announced and signed a compensation agreement with Crystallex for an extraordinary amount of $1.4 billion. This decision was made in favor of a company that not only did not comply with its production commitments but did not produce anything and did not make any kind of investment in the country.
To have an understanding of the disproportion of this amount, let us consider that after the ruling of the arbitration tribunal of the International Chamber of Commerce, the Venezuelan State compensated Exxon Mobil with 800 million dollars for its investments in the Cerro Negro project of the Orinoco Oil Belt. This happened after the nationalization of the Orinoco Oil Belt in 2007.
The government agreed to this amount in 2017, without evaluation, without discussion, without a valuation process or «due diligence.» Even so, the government only paid the first installment of the total amount committed to Crystallex before courts in the United States. Therefore, the Canadian company introduced a lawsuit requesting the auction of CITGO, and from there, the amount promised by the Venezuelan government was collected.
On May 18th, the U.S. Supreme Court ruled in support of Judge Leonard P. Stark’s decision in the Delaware District Court to continue the trial for the auction of CITGO’s assets in favor of Crystallex.
The U.S. Supreme Court ruling immediately produced an order by Judge Stark, issued on Friday, May 22nd. The order was to move forward with the auction process for CITGO’s assets. Crystallex must now obtain a license or authorization from the U.S. Treasury Department. The authorization would be in order to sell CITGO’s refineries and obtain the remaining payment committed by the Venezuelan government.
If Judge Stark’s decision to auction CITGO goes ahead and Crystallex obtains a license from the Treasury Department to proceed, the Venezuelan opposition would lose the control it currently has over this PDVSA asset in U.S. territory and the country. This is regardless of who might seek to exercise its legal representation before the U.S. They would lose an asset that in 2014 alone was valued at $15 billion.
This is a process full of irresponsibility, irregularities, and arbitrariness. It is an exact reflection of the dysfunctionality of the Venezuelan government and state institutions. This dysfunctionality continues to generate space for all kinds of irregularities and for the country to be subject to reckless lawsuits and actions by adventurers. There is no national strategy or institutional order to face the country’s challenges abroad.
This type of action, in addition to the sale of Nynas, the exit and transfer of assets and rights of Rosneft to another Russian entity and the process of handing over PDVSA carried out by the government, are a sign of the country’s institutional weakness. These signs continue to strike at Venezuela’s only chance of emerging from the deep political, economic and social crisis in which it is immersed: Full Oil Sovereignty.