The Organization of the Petroleum Exporting Countries (OPEC) released its monthly report today revealing a further decline in Venezuela’s oil production. The report highlights the plight of the beleaguered South American nation.
Venezuela produced 1,488,000 barrels per day in March according to secondary sources, a decline of 55,300 barrels per day from February. According to direct sources, production was 1,509,000 barrels per day, corresponding to a 77,000 barrel per day decline.
Production has been on a steady downward trajectory for years. In 2016 Venezuela produced 2,154,000 barrels per day according to secondary sources or 2,373,000 barrels per day according to direct sources.
Total rig count also fell in March to 86 from 89 in February.
Global oil prices
Oil prices rose in March by approximately 1 percent. According to OPEC’s April report, ICE Brent crude oil futures for March 2018 were $66.72 per barrel or $0.99 more than in February. The rise in oil prices is partially explained by Venezuela’s failing production.
“Oil prices climbed further to their highest level in several weeks as tension in the Middle East and the possibility of further drops in Venezuelan output helped offset the impact of growing US crude production,” the report explained. “After briefly turning lower on profit-taking, weaker equities and renewed concerns over retaliatory trade measures and rising US production; prices rebounded to near three-year highs on a surprise decline in US inventories, strong conformity with DoC [Declaration of Cooperation] production adjustments, and persistent geo-political concerns.”
The United States is the main purchaser of Venezuelan oil. However, hydraulic fracturing, or fracking, techniques have allowed the US, with its abundance of shale oil reserves, to become a major oil producer in its own right.
Ecuador and Brazil hold the line
Venezuela and Ecuador are the only members of OPEC in the Americas. Unlike its South American neighbor, oil production in Ecuador is holding steady.
Oil production essentially remained flat from February to March. Production based on secondary sources rose from 516,000 to 518,000 barrels per day, but according to direct communication production fell from 513,000 to 511,000 barrels per day.
While not a member of OPEC, Brazil is a major oil producer. Although production fell slightly in early 2018, production has remained fairly consistent for the last decade.
There has been a substantial shift in production in recent years. As the graphs below from OPEC’s April report show offshore production has been on the rise since 2013.
Offshore drilling boom
Offshore drilling projects are making a comeback throughout Latin America and the Caribbean as oil prices continue to rise.
A recent auction for offshore blocks in Brazil brought in more than $2.4 billion, according to The New York Times.
Part of the explanation for interest in offshore oil in Brazil is regulatory changes to the state-owned oil company PETROBRAS enacted under President Michel Temer. As the Times article explained, the regulatory changes included “dropping the requirement that the state company Petrobras be designated the managing company, and lowering the amount of Brazilian machinery and construction material that must be used for exploration and production.”
Brazil’s northern neighbor, Guyana, is also taking advantage of recent oil discoveries equivalent to more than 3 billion barrels of oil off its coast in the Caribbean. Guyana shares a border with Venezuela to the West, Brazil to the South, and Suriname to the East.
How to exploit the new discovery has caused friction in political circles. Specifically, there is ongoing concern that ExxonMobile received a far too generous contract from the government.
Revenue from oil could exceed $700 million per year by the 2020s, according to Damir Kaletovic for Oilprice.com. This would be equivalent to Guyana’s yearly revenue from taxes and could prove highly beneficial for the Caribbean nation of less than one million.
With a gross domestic product per capita of $8,300, the discovery of oil could boost the Guyanese economy towards the top of middle-income status. However, the government in Georgetown need only to look to their neighbor to the West to see what happens when an oil boom is mismanaged.