Venezuelan oil output has fallen significantly and experts say the decline could continue. AFP/Getty Images photo.

Venezuelan oil output down nearly 13 per cent last year

OPEC data released on Thursday showed Venezuelan oil output dropped nearly 13 per cent in 2017.  The decline marks a 28-year annual low that is due to a deepening economic crisis and rising chances of a debt default.

In 2017, Venezuela produced 2,072 million barrels per day (b/d), down from 2,373 b/d in 2016.

The decline was the largest drop among OPEC members.

According to Reuters, lack of investment, payment delays to suppliers, US sanctions and a brain drain have pummeled the Venezuelan oil industry, home to the largest crude reserve.  The decline has impacted oil exports and refining which has resulted in intermittent fuel scarcity in Venezuela as well as its allies, including Cuba.

Criticized by critics for what they see as move to consolidate power, recent measures taken by President Nicolas Maduro to supposedly crack down on oil graft, have sown panic across the country’s energy industry and all but paralyzed PDVSA, the state oil company.

“This is one of the worst collapses in history. It happened without an invasion like in Iraq, the breakup of a country like in the Soviet Union, or a civil war like in Libya,” Francisco Monaldi, a fellow in Latin American Energy Policy from Rice University’s Baker Institute told Reuters.

Venezuela’s oil ministry and PDVSA did not respond to a request for comment from Reuters.

The drop in Venezuelan oil output is expected to worsen a bitter recession and hyperinflation that has impoverished many of the country’s 31.5 million citizens.

Oppositions politicians say the country’s state-led economic model along with unchecked corruption are the cause of the oil industry’s meltdown.

“This is the most irresponsible act against the Venezuelan people. They destroyed the industry that generates almost 96 per cent of the country’s foreign revenue,” opposition lawmaker Elias Matta told Reuters.

Maduro argues US backed opposition supporters have sabotaged the Venezuelan oil sector.

Experts believe the fall will continue this year and analysts are wondering just how low production will decline.

In January, the energy sector saw an unprecedented rise of resignations and many say the brain drain is due to employee dislike of the new Minister of Petroleum and Energy, General Manuel Quevedo who was appointed late last year.

Former housing minister, Quevedo has no experience in the energy sector.

A former PDVSA employee says under Quevedo, salaries for workers are so low, they cannot afford to eat properly.

In December, Venezuelan oil output fell by 216,000 b/d from November to 1.621 million b/d.  OPEC data shows a 29 per cent decline from December 2016 levels.

Quevedo vows production will rise to over 2.4 million b/d in 2018.

Francisco Monaldi says the most vulnerable oilfields have already reported the sharpest drops, which could limit declines in the coming year.  Monaldi told Reuters that he expects production to fall another 250,000 b/d – 350,000 b/d in 2018.

Oil consultancy firm Energy Aspects agrees the decline in Venezuelan crude output will continue.  The London-based energy markets consultancy says its expects production in Venezuela to decline by 200,000 b/d in 2018.

The drop in production will help balance global oil markets.

“Underperformance by Venezuela helps OPEC to reach its overall (production cut) target quicker for sure. Once balance is achieved, they will taper the cuts,” Amrita Sen, co-founder of the firm, told Reuters.

Should production continue to decline, Venezuela could be forced into full default, which experts say would be one of the largest and messiest credit events in history.

In 2017, Maduro said Venezuela wanted to restructure its foreign debt, including about $60 billion in bonds issued by PDVSA and the government, which has been late with bond payments in recent months.

Reuters reports that holders of Venezuelan debt have so far been tolerant of these delays, but that could change if it appears as if the country no longer has the money to pay.