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Venezuela crude oil output careens toward 1 million b/d

Washington — Venezuelan crude oil production is on the verge of sinking to 1 millionb/d, and factors playing out this month will determine whether that level isreached early next year or within a few months.

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* EIA says June exports could change outlook through 2019

* Low rig count leaves no chance of stabilizing output: Citi

* Projection becoming more of art than science: EIA analyst

The Energy Information Administration projects Venezuela will hit 1million b/d in second-quarter 2019, said analyst Lejla Villar, who developsprojections for the monthly Short-Term Energy Outlook.

"However, I am eagerly awaiting to see what the actual June productionnumber falls to, which may very well accelerate the decline in productionthrough 2019, pushing up this time line," she said. "If the worst-casescenario for June production comes true, then we could see Venezuela'sproduction fall to 1 million b/d sooner."

EIA's latest STEO report estimated Venezuelan output at 1.43 million b/dfor May, down from 1.46 million b/d a month earlier and from 1.98 million b/din May 2017. The International Energy Agency put May production at 1.36million b/d and said it could fall to 800,000 b/d or even lower next year.

S&P Global Platts estimated the country's May output at 1.36 million b/d,down from 1.41 million b/d in April, according to a survey of industryofficials, analysts and shipping data.

Francisco Monaldi, a Latin American energy policy expert at RiceUniversity, expects Venezuelan production to show a "major drop" in June andJuly. He sees it falling to the key psychological level of 1 million b/d byNovember or December.

Ed Morse, Citi Group's global head of commodity research, said the 1million b/d level is imminent, with current output likely around 1.1million-1.2 million b/d. He attributes the latest sharp drop to the seizing ofVenezuelan logistics assets critical to blending up heavier crude as part of aConocoPhillips lawsuit.

Morse added that production will keep dropping as long as Venezuela's rigcount remains in the 20s.

"You need a rig count above 40 and closer to 50 to keep production evenin Venezuela," he said. "That doesn't look like they can manage to stabilizeproduction yet."

EIA's Villar said the Venezuelan forecast is becoming trickier. "It'sbecome been more of an art than a science lately," she said.

In the past, Villar has been able to track individual joint venturesproject by project to develop her monthly outlook.

"In the absence of good information, I have to rely on export numbers,"she said. "Recently that's really been the driver, the main input into theestimate, simply because that is the most real-time available information asto what leaves Venezuela's shores."

Villar said export data at the end of the month could affect her entireforecast.

"Depending what June does, this may or may not lead me to take a morepessimistic view on Venezuela's production outlook through the end of 2019,"she said.

--Meghan Gordon, meghan.gordon@spglobal.com

--Benjamin Morse, benjamin.morse@spglobal.com

--Edited by Valarie Jackson, newsdesk@spglobal.com