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Venezuela's oil woes worsen as output slides to 1.509 mil b/d in March

Highlights

Exports, refinery runs continue to plunge

Output could fall as low as 1.1 mil b/d by end-2018

US sanctions could exacerbate situation

Venezuela's oil production slide shows no signs of abating as the country posted its lowest output in March in almost two decades, it told OPEC Thursday.

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The Latin American country self-reported production of 1.509 million b/d in March in OPEC's latest Monthly Market report.

This is a fall of 77,000 b/d from the previous month, and a fall of 260,000 b/d from January illustrating how steep the decline has been.

Crude output has fallen 860,000 b/d from its 2016 production averages of 2.373 million b/d, according to its own data, as Venezuela's oil sector has been plagued by spiraling debt, mismanagement, corruption, crumbling infrastructure and a lack of investment.

Sources have told S&P Global Platts production and exports have been tumbling in the past year as state oil company PDVSA has been struggling to secure diluents and other chemicals needed to pump crude, keeping its refineries operational and maintaining deteriorating infrastructure.



Exports have continued to nosedive, but in March the country's domestic refining woes worsened. Refinery runs are expected to fall further in the coming months with some refinery closures expected due to underinvestment and a lack of crude to process.

BLEAK OUTLOOK

Analysts expect woes in Venezuela to worsen in the coming months.

The US is likely to impose potential sanctions on Venezuela's oil sector especially if Mike Pompeo is confirmed as US secretary of State.

Analysts from US consultancy Rapidan Energy Group expect production to plummet at a faster pace, forecasting output to reach 1.1 million b/d by December 2018, adding that it could even go as low as 970,000 b/d by December next year.

"US sanctions could lead us to revise our forecast lower depending on what is targeted and how sanctions are implemented," Fernando Ferreira, senior analyst from Rapidan Energy said. "The trend is likely to continue next year, with declines in light and medium grades accelerating further. However, declines from heavy and extra-heavy grades will ease as production reaches a 'stable bottom' determined by the capacity of heavy crude upgraders," he added.

The fall in Venezuela's output also prompted Barclays Capital to revise down its oil supply outlook.

"The change in expectations in Venezuela from 1.4 million b/d to 1.1-1.2 million b/d has tightened our balances," it said in an analyst note.

"On the supply side, the main change to our balances comes from a 100,000 b/d downward revision to Venezuela's output in 2018 and a 200,000 b/d downward revision in 2019," it added.

In mid-March, the Trump administration banned the use of the Venezuela-issued digital currency known as the petro in an attempt to pressure the Maduro regime ahead of May's controversial presidential election, but it has not imposed oil sector sanctions, largely due to the potential impact on US refiners.

US refiners imported 438,000 b/d of Venezuelan crude in January, up about 1,000 b/d from December, a month which saw the lowest level of Venezuelan imports since January 2003 when a general strike effectively shut down the country's oil sector.

OPEC COMPLIANCE

After years of self-reporting production that was higher than OPEC's secondary sources had estimated, Venezuela's March figure is very close to some independent estimates and puts in clear focus the immense challenge facing the country, especially PDVSA.

OPEC's secondary sources pegged Venezuela's March output at an average of 1.488 million b/d.

S&P Global Platts is one of the secondary sources and estimated Venezuela's March production at 1.49 million b/d, the lowest recorded since Platts began its OPEC survey in 1988, save a major industry strike in late 2002 and early 2003.

Venezuela's declining production has made it the most compliant -- if unwillingly so -- member of the 24-country OPEC/non-OPEC coalition that has implemented output cuts to help prop up prices.

Production has averaged 1.831 million b/d since the deal first came into place in January last year.

This is much below its quota under the deal of 1.972 million b/d, making it 248% compliant, according to Platts OPEC survey data.

The country's oil minister Manuel Quevedo is scheduled to attend the OPEC/non-OPEC joint ministerial monitoring committee on April 20 in Jeddah in Saudi Arabia.

--Eklavya Gupte, eklavya.gupte@spglobal.com

--Edited by Jeremy Lovell, newsdesk@spglobal.com