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Venezuela’s oil production has declined in May, following the spillover effect of electricity crisis. Given the consecutive decreases in recent months, steepening of decline rate remains a worrisome trend. The lack of output from Orinoco, along with prevalent shortages, has further quickened the deceleration from the country’s mature oil fields.
Venezuela’s oil production declined 120 kb/d m/m (-4.8 percent) in May, reaching 2.37 mb/d, according to data released by the Oil and Petroleum Exporting Countries. Although majority of the oil production does not depend on grid-provided electricity, roughly 200 kb/d is dependent on electricity and rationing of the latter has most likely led to decline in the country’s oil output.
Furthermore, the government has, most likely, diverted natural gas, normally used for enhanced oil recovery for power generation, a move that would ultimately lead to increased decline rates. The downside risks for Venezuela’s oil production seem to be increasing, with recent figures showing that oil production is not an exogenous variable and the deep economic and political crisis that the country is suffering is harming the oil sector, further.
"We are increasing our expected decline in average oil production for 2016 to 300-350 kb/d from 200-250 kb/d, to end the year at about 2.1 mb/d. If May’s decrease becomes the new trend, average production could fall 400-500 kb/d and end the year at about 1.7 mb/d," Barclays Research said in a research note.
Moreover, a decline in oil production of the magnitude seen that occurred in May and an eventual continuation of this trend cannot be offset by a reduction of imports or domestic consumption. Also, data from secondary sources hinted that a production decline in May could have actually resulted into a drop in oil exports. In particular, deliveries from Venezuela to India may have decreased more than 100 kb/d.
Meanwhile, China, a top-end trading partner with Venezuela, maintains high interest in the oil-producing nation, but is unable to provide additional financial support, given current volatility in global financial and political uncertainty.
