WEEKLY OIL REPORT
Week of 22nd to 26th June 2020
As in the previous week, oil prices show this week an upward trend, with a timely drop on Wednesday, June 24th, related to the EIA (US Energy Information Administration) report which, signals for that day another increase in the US crude oil inventories.
OIL PRICE (March-June 2020)
On Monday, June 22nd, Brent and WTI traded at $43.20 and $40.60 per barrel, respectively. At the end of Friday, June 26th, Brent and WTI are trading at $40.91 and $38.91 per barrel, which represents a 4% drop from Friday, June 19th.
BRENT PRICE (15-26 June 2020)
WTI PRICE (15-26 June 2020)
For two weeks in a row, oil price levels have been at $40 per barrel, due to the positive price effects of the OPEC+ cuts, but they are still 38% (Brent) and 36% (WTI) below the prices before the price collapse began on March 6, 2020.
BRENT PRICE VARIATION
January – June 2020
WTI PRICE VARIATION
January – June 2020
The Organization of the Petroleum Exporting Countries (OPEC) reference basket of crude oil closed on June 26th, at $37.18 per barrel, 6% down from the previous week’s close, Friday June 19th, when it stood at $39.45 per barrel.
DAILY PRICE OF OPEC BASKET
(March – June 2020)
The behavior of the oil price continues to show a recovery trend, but marked by the instability of the physical market, due to its supply-demand fundamentals remaining unbalanced.
Although, on the demand side, the OPEC+ cuts have been the decisive factor in removing from the market the overproduction that characterized March and April, the slow recovery of the world economy and the impact of COVID-19 continue affecting a return to pre-pandemic levels and making it difficult to estimate such return.
Furthermore, in a survey made to 43 analysts to find out their predictions regarding the levels at which prices will be by the end of this year, they estimate that by the end of 2020 oil prices will not exceed the barrier of 40 dollars a barrel.
EVENTS IMPACTING OIL PRICES 2020
Analysts estimate that even with the current increases in oil prices, in 2021prices could not recover yet.
So far, it is difficult to estimate the magnitude of the impact of the crisis that started with COVID-19; new outbreaks in China, as well as increased contagion rates in the US and resurgence of the virus in Germany, set a situation of uncertainty that affects the normalization of demand in the world’s major economies.
The unprecedented cut of 9.7 million barrels of oil per day implemented by OPEC+, made effective from May 1st and extended to July, continues to be the decisive factor in the stabilization of the market that has led to the gradual recovery of the price, in addition to reaffirming the leadership of Russia and Saudi Arabia, which are at the head of the OPEC+ countries, in the regulation of the market.
At the 19th meeting of the OPEC+ Joint Ministerial Monitoring Committee (JMMC), held on June 18th, the level of compliance with the cut during the month of May was 87%.
The Ministerial Committee received the schedules from Iraq and Kazakhstan, who will make additional cuts to the established quotas between July and September to compensate for the low levels of compliance in May. The JMMC asked the Secretariat to contact those OPEC+ countries that have not yet submitted their reduction plans under the “compensation concept” to do so during this week in preparation for the next Joint Technical Committee and JMMC meetings on July 14-15, 2020.
Moreover, news agencies mention the commitment made by Nigeria to reduce its production by 45,000 barrels a day every month from June to September, in order to compensate for the 180,000 barrels a day produced in May above the agreed levels.
The EIA reports that, according to records published on June 24th, oil production in US as of June 19th was 10.05 million barrels per day (MBD), down 100,000 barrels per day from the 10.9 MBD produced on June 12th, and staying within the overall drop in US oil production of 22% since March 6th, when it was 13 MBD.
DROP IN PRODUCTION IN THE USA
“The Great Compression” of the US shale industry.
On 22 June, the consulting and audit firm Deloitte presented a report on the implications of Covid-19 on the shale oil industry in the United States. This work exposes the difficulties experienced by this sector, which has been characterized by its volatility, even though it contributed to positioning the United States as the leading producer and exporter of oil.
The study indicates that the shale oil sector has been strongly affected by the consequences of COVID-19. It was achieving some stability, and reaching a $50-$60 breakeven; however, the current situation with regards to consumption and prices is putting this sector at risk.
The firm estimates that 30% of shale oil operators are technically insolvent, and about 20% have stressed financials with crude oil prices at $35 a barrel. It is also suggested that by the end of 2020 shale oil production companies could write down the value of their assets by $300 billion and the sector will suffer a wave of bankruptcies, followed by massive consolidation.
Drilling activity in the United States
According to information obtained from Baker Hughes’ North America Rotary Rig Count , as of June 26 there are 188 active drills destined for oil extraction in the United States, which represents a decrease of only one drill from the previous record. Although the drop in numbers seems to have slowed down this week, there is still a trend towards a decrease in the amount of drills used in the US to extract crude oil. This trend can be confirmed by comparing the current figures with those of this past 12 June (199), April (504) and March (682) of year 2020, and of June 2019 (793 drills).
ACTIVE DRILLING IN THE U.S.A.
Russia’s energy minister, Alexander Novak, told a German media outlet that he does not currently see the need for further production cuts under the OPEC+ agreement, noting that: “ In July the agreement will result in two million fewer barrels of oil on the market than originally planned, Then we’ll see. There is a lot that is unclear: consumer demand, and whether there will be a second wave of coronavirus that many expect. That would again disrupt markets considerably…”
He reported that he is expecting possible requests for state aid from Russian oil service providers, which have been heavily affected by production cuts. Several agencies have collected information about plans by two Russian state banks -Sberbank and VEB- to lend oil companies about 400 billion rubles (6 billion dollars) at almost zero interest to drill about 3,000 uncompleted wells to be completed more quickly once prices recover, thus bringing Russian production to pre-COVID-19 cutting levels.
According to this week’s preliminary reports from Bloomberg regarding the combined shipments of Russian crude oil in the Baltic and Black Sea ports, which could reach 880,000 barrels per day in the first ten days of July, this would be the country’s lowest export production since 2008, with Russia maintaining the reduction in quotas decided by OPEC+ for June and July.
The count of infections and deaths due to COVID-19 continues to rise and the World Health Organization reported 9,129,146 cases and 473,797 deaths as of June 24th, with the Americas having the highest numbers of infections and deaths resulting from coronavirus (4.5 million and 226,000, respectively), followed by Europe, the regions of Eastern Mediterranean, Southeast Asia and the Western Pacific, and Africa. In the Americas, the United States continues to lead the count (2.2 million cases and 120,000 deaths), followed by Brazil (1.1 million cases and 51,000 deaths).
With regards to the United States, the unlock has led to a sharp increase in contagion, particularly in the states of Texas, Florida, Oklahoma and California, so the pace of recovery has become erratic; in fact, state authorities and some companies have made the decision to reinforce containment and movement restriction measures, or to delay the reopening of businesses.
Several countries in Europe, particularly in the West, are preparing to reopen tourism activities and to open external borders on 1 July, torn between the hope of reviving a key sector for many economies in the region, and the fear of a second wave of contagion.
Chinese authorities have declared the COVID-19 outbreak in Beijing’s Xinfadi market “under control”, but they remain vigilant in a bid to prevent and combat isolated infections clusters and community transmission.
The upsurge in coronavirus cases in the United States, and the management of the disease by the federal government, has caused concern in Europe, particularly in those countries that consider have left behind the worst stage of the crisis -having already paid a high price for the losses incurred both by their economies and their people- and are now preparing to reopen the borders to welcome the so-called “new normality”, which includes the reactivation of tourism -an essential industry for many countries of the Eurozone.
In this regard, the spread of COVID-19 in the U.S. -a 69% increase in cases in 48 hours in California (from 4,000 to 7,000 cases) and record rises in new cases per day in Texas (5,000 on June 23), and Florida (5,000 on June 24)- contrasts with the relatively low level of new coronavirus infections in the European Union. In mid-March, President Trump imposed entry restrictions on the Schengen Area; now Europe is considering similar travel restrictions for US citizens.
NEW CASES OF COVID-19 CONFIRMED WEEKLY IN THE EUROPEAN UNION AND THE UNITED STATES
The IMF Economic Outlook
On June 24, the International Monetary Fund (IMF) published an Update on its World Economic Outlook, and its basic argument is lapidary and dramatic: “Deep downturn in 2020, anemic recovery in 2021”, since the impact of COVID-19 is more serious than estimated in April, in terms of world economic activity in the first half of this year.
The Fund projects a decline in global growth, expressed as a global GDP of -4.9% in 2020; this is 1.9% lower than the 3% forecast made by the IMF in April of this year. As for global Gross Domestic Product growth in 2021, it would be 5.4% if the projections are met; even so, the recovery would be 6.5% below the forecasts made by the Fund before the start of the COVID-19 crisis.
COMPARISON OF IMF ESTIMATES IN JANUARY, APRIL AND JUNE 2020
The impact of the COVID-19 crisis on the economies of all countries is reflected in the Fund’s lower growth prospects than anticipated in its April report. Most countries (with the exception of emerging and developing Asia, including China) will see a decline in growth this year and a rebound in 2021. The Eurozone would be the hardest hit region, with a decline of -10.2%, followed by Latin America and the Caribbean, with -9.4%. In terms of the GDP of each country, the reduction of the United States stands out with 8%, although the fall of the GDP in France, the United Kingdom, Brazil, Mexico, Argentina, Spain and Italy will be much greater.
These forecasts have a high element of uncertainty due to the particular and unprecedented development of the pandemic and its impact on the economy; therefore, the International Monetary Fund contemplates a scenario of a second COVID-19 outbreak and another in which recovery is faster. The statement made by OPEC Secretary General, Mohammad Sanusi Barkindo, at a recent oil event in Abu Dhabi should not be overlooked: “…I remain optimistic but cautious the worst is over and a recovery will be in full swing in the second half of this year… However, what shape the recovery will take, whether a ‘V’ shape, ‘W’ or inverted hockey stick, is still uncertain…”
Unemployment in the U.S.
With regards to unemployment figures in the United States, the Department of Labor reported on Thursday, June 25, that requests for assistance were at 1,480,000, which is 60,000 less than the previous week, thus maintaining the downward trend of the last three months, although still quite far from the numbers seen before the COVID-19 crisis (282,000 in March 2020, or 224,000 requests at the end of June 2019).
It remains to be seen whether this downward trend will be affected by the development of the COVID-19 crisis in the US, where the south and west regions are reaching record numbers of infections and deaths, following the de-escalation of the containment measures and the reopening of the economy, all of which is forcing state authorities -despite Washington – to evaluate the backward step in the de-escalation.
DECREASE IN U.S. UNEMPLOYMENT CLAIMS
EIA projections for the next six months show a scenario of continued growth in demand for fuel and oil products due to the increased demand from emerging regions and countries such as Europe, the United States and Oceania, due to the progressive lifting of quarantines and the opening of borders.
In terms of demand in the US, a scenario arises of an oil market that grows in demand, recovers some of its production, raises inventories but lowers imports. According to data projected by the US EIA, consumption of petroleum products will have sustained growth and recovery in North America for the second half of the year, which could have an effect on increasing demand for crude oil in the United States. The EIA notes also that oil consumption fell by 17% in the country, mainly airborne fuel with a consumption drop by 62% as for the same period in 2019.
However, oil imports fell sharply from June 12, while inventories increased. These factors, coupled with the impact of the COVID-19 virus, which remains decisive in social and economic behavior; the difficult political moment for the current US administration and the social tension in large sections of the population, in addition to gloomy global economic forecasts by the International Monetary Fund, can affect the planned economic recovery and impact oil demand in the country.
In June, China published oil data for May, with imports of more than 351 million barrels, their highest level in the last 12 months.
After successfully controlling the COVID-19 outbreak in the capital’s wholesale market, the Chinese government is still on the road to economic recovery. The country was recognized in IMF forecasts as one of the few economies that will grow this year, with 1.2%, and continues trying to strengthen its supply of crude oil to boost economic recovery, with demand levels of 12.37 MBD for the third quarter of 2020 and 13.28 MBD for the last months of the year.
INCREASED OIL IMPORTS IN CHINA
In the Republic of India, it is estimated that the total demand for oil products will be reduced by 500,000 B/D in June 2020 -the same for the month of July- compared to the same period last year. According to the state-owned Indian Oil Corp, the demand for fuel (gasoline, diesel and jet fuel) in the first two weeks of June was reduced by between 15% and 20% compared to the same date in 2019. They expect to recover 100% of the demand by 2022.
Refineries in India are regaining their operational capacity since the beginning of the COVID-19 pandemic. By May 2020, 23 refineries were operating at 77%, up from 72% in April. For specialists in the sector in this Asian country, it is possible that these refineries could reach 100% of their capacity of use before August.
The behavior of the inventories reported by the EIA and its weekly report on oil inventories had a direct effect on the drop in market prices on Wednesday, June 23.
US commercial oil inventories continue to rise, standing at 540.7 million barrels, 1.4 million barrels more than the previous week. The EIA reports a 16% increase from the five-year average for this time of year.
OIL STORAGE UNITED STATES 2020
In relation to the days of coverage, we can highlight a reduction of 0.5 days in relation to the previous week, standing at a weekly average of 39.9 days. Although it shows a slight decrease, in view of the gradual reactivation of demand, it is 12.5 days above the average recorded in 2018 and 2019, namely, 27 days.
DAYS OF STORAGE COVERAGE
OIL UNITED STATES 2018 – 2019 – 2020
Total US storage, including strategic reserves, reached 2.104 billion barrels per day this week, 5.9 thousand barrels more than the previous week and 12% and 8% higher than inventories in June 2018 and 2019, respectively.
In our Oil Report last week, we mentioned the production report on the OPEC+ countries, highlighting the continuous fall in oil production in Venezuela, which, according to secondary sources, stands at 570 MBD of oil for the month of May, an output equivalent to that which the country saw in 1943
EVOLUTION OF VENEZUELAN OIL PRODUCTION
Right now the available information about the hydrocarbon sector in Venezuela is characterized by such opacity and secrecy that the only reliable sources regarding the oil production and exports of the country are the secondary sources used by OPEC in its MOMR, and the agencies that monitor the oil market.
The information system of the Ministry of Petroleum has been dismantled; at the moment, there are no measurements for or reports on the production and export volumes in the country, let alone on the sales prices of our oil. The Ministry of Petroleum is an empty shell.
With this current government in Venezuela , we have gone back not only to the production levels of 1943, during the oil concessions period, but also to the years when the transnationals ruled over our natural resources, when there was no Ministry of Petroleum and no supervision or control on the production, exports, and prices of the Venezuelan oil.
There is no public information on the performance of oil sector, the most important sector of our national economy; there is no information on its engine -the country’s main company. There is no accountability, no control.
The lack of information at all and the opacity of the little information we have with regards to the performance and management of our oil sector only favors the transnationals and the private entities or persons that have taken control of this strategic industry for our country.
Dismantling of the Ministry of Petroleum
The Ministry of Petroleum is the institutional seat of Venezuela’s petroleum policy, as established by the Organic Law of Hydrocarbons. The Ministry, as a governing body of the State, must have the clarity and political strength to conduct our oil policy, as well as the strengths and knowledge to control the performance of PDVSA and the transnational minority partners in the Mixed Companies, in order to be able to report on the sector’s performance to the Venezuelan State control bodies.
This is why one of the first battles we started fighting, on July 17, 2002, when appointed as Minister in the then-Ministry of Energy and Mines, was aimed at assuming the direction of the management of the oil industry, reestablishing the role of the ministry as the focal point of oil policy, dignifying its workers, improving their technical capacities and knowledge, and giving them an effective role in the management of the sector.
It was difficult to achieve this strategic objective; we had to defeat the resistance of the operator company, PDVSA (both the old guard and the new officers), and the resistance of the rest of the country’s institutions, which are always impressionable to the action and influence of PDVSA as “a State within the State”.
Only a combination of circumstances -the revolutionary upsurge we experienced during the defeat of the Oil Sabotage, and President Chávez’s continuous support to our administration- allowed us to make a great leap forward and recover the institution from the deep damage caused to it by both the nationalization in the 70’s and the “Oil Opening” (“Apertura Petrolera”) policy in the 80’s and 90’s; the damage done by the nationalization was because of the attitude of thinking that once having PDVSA, the Ministry of Petroleum could lower its guard regarding its role in the control and management of the sector. In the case of the Apertura, because eliminating the Ministry -the instrument of the Venezuelan State to exercise manage and control- was a sine qua non condition for those who pursued surrendering the oil to foreign interests.
The process of rescuing the Ministry began at the same time as the rescue of PDVSA happened, between years 2002-2004. This process comprised the takeover of the East Tower of La Campiña (the headquarters building of the Ministry), which was abandoned by a management who was then committed to the oil sabotage; also, it included the replacement of the old and stagnant management staff, the professionalization of the personnel -enabling them to get access to knowledge and to improve their working and living conditions, the increase in resources and equipment, as well as raising the morale and self-esteem of the civil servants, who had such an important role assigned to them by law.
Next, we re-established all the control and supervision mechanisms: strengthening of all the directorates and vice-ministries, creating a high political-legal committee for the revision of contracts and the follow-up of the compliance with the law in general, updating norms and procedures according to the best international practices, publishing the PODE (the “Oil and other Statistical Data” publication), strengthening the measurement, calculation, and liquidation of royalties, creating the SAMH (the Autonomous Service of Hydrocarbon Metrology), creating in Vienna, Austria (where OPEC headquarters are located) the Ministry’s office tasked with supervising and controlling oil prices, and strengthening the figure of the Commissioner/Commissar in PDVSA, among other measures we took.
The strengthening of the Ministry of Oil was instrumental to the success of our policy of Full Oil Sovereignty (Plena Soberanía Petrolera), the control over the exploitation of our main natural resource, and was a key element for guaranteeing the collection of the oil rent in order to deliver it to the Venezuelan State.
That was then; nowadays is quite different. In the brief 7-year period the Ministry of Petroleum was dismantled by the current administration; a detrimental process was set to destroy this institution and its professional capacities, while the once proud workers of the Ministry were constantly persecuted, imprisoned, and mistreated, and a whole generation of young professionals, who were trained by the State during 12 years of intense work, was displaced.
As a consequence, today nobody knows anything about our oil-related activities, plans, and operations. We do not know how much oil or gas is being produced in the country, nor the sale price of our dwindling exports, nor how much gas is being vented, nor how the fields are being exploited, their depletion rate, their recovery factor; we do not even know whether the oil fields are being depleted.
There is no control over the preservation of the deposits, their exploitation rate, their exhaustion; we do not know whether the decline is being compensated with new production, or if new reserves are being incorporated, among other basic tasks that the Ministry of Petroleum should be performing. Because of this, and from a technical point of view, the production possibilities of Venezuela for the future are being compromised.
The dismantling of the Ministry of Oil is NOT a casual phenomenon, and it is not the result of the mere disorder and incapacity that has characterized the government; the dismantling of this key institution responds to the plan to surrender the Venezuelan oil.
The elimination of the Ministry of Petroleum is a shared objective among the new “aperturistas” (“pro-openness” people): to create a hydrocarbons “agency” that only administers contracts (as a matter of fact, this is what PDVSA and its subsidiary CVP are currently doing), that ‘regulates’ the scramble by the transnationals of our immense oil reserves but without exercising either the control of the State on the activity or the administration of the exploitation rate, and much less the valorization of the oil.
Production and price control and audit
If we do not audit it, if we do not oversee it, we do not know how much oil we produce or how much we export, therefore, we cannot control or regulate the extraction of our reserves. We cannot keep track, and we cannot know if law or contracts are being violated or at what price the oil is being sold, much less collect royalties.
Currently, there is no mechanism by the State to verify export volumes as the oil is secretly leaving our terminals.
The excuse of sanctions and the “blockade” are the perfect alibi for ships to enter the militarized terminals and for the new government “agents” to take as much oil as they can and then to make large profits for themselves by selling our oil at huge discounts.
There is no way to verify how much oil they take out of the country. We are going back to the first 30 years of our oil industry, when there was no control over the concessionaires, the transnationals, which exhausted a good part of our best reserves in the Maracaibo Lake basin. They looted us then, and they are looting us now.
The massive discounts on the price of Venezuelan oil and the Vienna Office
Venezuelan oil continues to be sold at large discounts in the international market. During the recent oil price crisis in March and April, massive discounts were granted to Venezuelan oil, indexed to Mexican Maya oil, which in turn is linked to WTI, placing Venezuelan Merey oil below or very close to its production cost.
This situation of massive discounts on the sale price of Venezuelan oil is not new; we have been denouncing it since December 2017, since the closure of the Ministry’s office in Vienna, whose fundamental task was to verify that PDVSA’s oil sales prices were in line at least with the price established by the Ministry of Petroleum regarding the price formulas established for the purposes of its sale. In other words, the Ministry established a minimum sales price, above which PDVSA could agree with the buyers.
The Discount Policy
A central axis of the policy of Full Oil Sovereignty (2004-2014) was to re-establish the competence of the Ministry of Petroleum to fix the sales price of the Venezuelan oil, putting an end to the policy of massive discounts in the sales price of crude oil that were a characteristic of the era of “Oil Opening” that was imposed on the country from the mid-1980s to the end of the 1990s.
In 1999, in the first report of PDVSA’s Commercial Commissioner, it could be established that, with an oil price of 11 dollars a barrel, PDVSA -to whom the Ministry of Oil at the time had ceded its capacity to establish the sales price- was granting massive discounts on the price of oil that came to be in the order of 4 dollars a barrel; that is, 40% of the price at the time, particularly to favor the subsidiary company CITGO, located in the USA.
Thus, it was affected by 40% the entrance to the Venezuelan treasury from the sale of oil, as well as the income of PDVSA, which was in the process of privatization. Then, as it happens now, the country was shaken by a terrible economic crisis, and PDVSA’s policy of discounts on the sales price of oil deprived the Venezuelan state and the country of resources that were indispensable for dealing with the situation.
In May 2006, in the abovementioned process of political strengthening and recovery of the conduction of the oil policy in the country, the Ministry of Petroleum resumed its powers, granted by the Organic Law of Hydrocarbons, to establish the minimum sales price of Venezuelan oil in the international market, using price formulas for each destination market, with the corresponding crude markers and adjustment factors.
PUBLICATION IN THE OFFICIAL GAZETTE OF THE MINIMUM PRICE FORMULAS FOR VENEZUELAN OIL
These price formulas were published in the Official Gazette of the Republic, that is to say, they were of public knowledge, and they were established as the minimum references, below which Venezuelan crude oil could not be commercialized.
MINIMUM SALES PRICE FORMULAS FOR VENEZUELAN OIL ACCORDING TO THE DIFFERENT MARKETS
The price formulas were designed so that PDVSA would make direct sales to the refineries without using “traders”, thus avoiding surcharges to the intermediary’s company and reducing the speculative “spot” market.
With the formula prices, the Ministry of Petroleum put an end to the policy of discounts on sales prices and reduced the discretion of the Vice-President of Trade and Supply of PDVSA to sell oil below this price, and consequently the fiscal income of the Venezuelan State and the company’s revenues were not affected anymore.
The Office of the Ministry of Oil in Vienna
This office, established on March 14, 2007, as part of the control mechanism of the Ministry of Petroleum, verified the sales prices with the values of the formulas, using mathematical models and open information, in order to verify that the prices were in accordance with or above the value estimated by the formulas. This was done in sharp contrast with the past practice of little information that was provided by the Vice-President of Commerce and Supply, in whose office there was always opacity and resistance to the audit and the final sale.
Based on this information, and on the data provided by the Autonomous Service of Hydrocarbon Metrology (SAMH;, created by the Ministry of Petroleum in February 2007 to control the volumes produced and exported by the country), the calculation and liquidation of royalties and other taxes and special contributions established by the State for the oil sector was made.
This system of price setting and control of production, export and sales was a key factor, fundamental to guarantee compliance with the oil fiscal regime established by the Venezuelan State in the period 2004-2014. This allowed the collection of more than eight hundred and sixty-five billion dollars in oil sales, of which 496.363 billion dollars corresponded to fiscal income.
OIL TAX REVENUE IN VENEZUELA DURING “FULL OIL SOVEREIGNTY” (200-2014)
The Return to Discount Policy
As of 2015, the government, in its process of dismantling the Ministry of Petroleum and weakening PDVSA, and in the interest of the power groups that took control of the company, resumed the practice of giving discounts to Venezuelan oil exports, especially to the Chinese market, where sales were made in Singapore and from there to their final destination.
Later, PDVSA, through the Vice-Presidency of Commerce and Supply, tried to reach an agreement with the multinational Singapore-headquarters company Trafigura, so that the latter would commercialize Venezuelan oil. This proposal did not succeed due to the political and economic risk problems associated with an activity reserved for PDVSA by the Organic Law on Hydrocarbons.
Finally, in December 2017, the government attacked the Ministry’s control Office in Vienna, raising false accusations and ordering its closure.
From then on, with no other accountability mechanism in place, PDVSA resumed the practice of massive discounts on the sale price of Venezuelan oil. In addition, with the progressive dismantling of PDVSA’s Trade and Supply technical capacities, the marketing operation was transferred to PDVSA’s partner companies.
On the other hand, PDVSA has ceded the marketing of its oil to “traders”, private companies or some of the partners in the Mixed Companies, thus losing all capacity to control the volumes and sales price of Venezuelan oil.
Since 2016, when the government increased its foreign debt payable with oil volumes, oil exports began to be controlled by both PetroChina and Rosneft. Also volumes of crude oil were granted to individuals, partner companies in the Mixed Companies, service and supply companies, as well as food importers, among others, to pay debts or services directly with oil, affecting the Unity of the Treasury principle and, of course, the tax revenues available, both through discounts and complex triangulations and financial transfer operations, where each operator is left with a commission, plus a “Premium”, as payment for the risk assumed in this type of non-transparent operation.
As a result of the US sanctions, both PetroChina and Rosneft ceased their Venezuelan oil trading operations, transferring them to other operators, companies present in Venezuela, “traders” or companies from other branches of business, such as the food importer Group Grand Limited.
Today, the dispatch terminals and the oil sales operations are operations controlled by the military structure in charge of PDVSA, and some private partners of PDVSA or “traders” characterized by their lack of transparency. The government and its national oil company stopped supervising oil operations, production, marketing and sales prices. Fewer and fewer companies want to venture into operations of this kind, subject to US sanctions or scrutiny for irregularities.
PDVSA does not have the capacity to sell its own oil, AND IT HAS LOST ITS OWN FLEET OF MORE THAN 33 OIL TANKERS DUE TO DROUGHT AND DISABILITY.
The few committed workers who remain within the company do not have the experience for operations of this magnitude, and are always exposed to retaliation or detention if they detect irregularities or report operations that are harmful to the interests of the country. They work in a business environment of absolute un-governability and impunity.
The fall in oil production by more than 2,458 million barrels of oil per day since 2014, as well as the dismantling of production, plus export and sales price control activities, in the Ministry of Oil, along with the closure of the Oil Ministry’s monitoring office in Vienna, these are the main reasons why the country has dramatically reduced its oil revenues. All of them are factors that have seriously affected the national economy, plunging the country into the worst crisis in its contemporary history.
As we finish writing this issue of the Oil Report, we received the sad news of the death of Asdrúbal Baptista, a prominent Venezuelan economist who had made unquestionable contributions to the research and study of the country’s oil economy, as well as important contributions to the country’s economic thought. Our feelings of solidarity and respect go to his family and we honor his memory.
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