Finance Monthly March 2019 Edition

16 www.finance-monthly.com FRONT COVER STORY - VENEZUELA’S OIL CURSE Venezuela’s Plunging O Output is expected to remain und Forecasted 3 million barrels a day 2.5 2 1.5 1 0.5 2013 20 Source: Rystad Energy 2.42M Barrels US SANCTIONS & THEIR IMPACT As mentioned, the oil industry is the main sector that is responsible for Venezuelan government’s revenues - for more than 90% of revenues to be precise. Before delving into the way the sanctions are expected to affect the country’s economy, let’s take a look at the country’s oil production stats. According to data from Rystad Energy, in 2013, Venezuela was producing 2.42 million barrels per day, while the output today is lingering above the 1 million mark. Production has been dropping more intensely in recent months and even without the recent US sanctions, the oil production in the country would have experienced a drastic drop due to lack of investment. Trump’s administration’s restrictions are only rubbing salt into the wound. Even though the White House’s intention is to make oil revenues reach the people of Venezuela and bypass Maduro’s government, which owns most of the oil industry through PDVSA, the sanctions have the power to be disastrous for the country’s economy and potentially set off a domino effect in the global energy market. Two things are worth mentioning here: Venezuela used to be the fourth biggest crude importer in the US (after Canada, Saudi Arabia and Mexico), while the US is Venezuela’s number one customer. Thus, the problems that arise from the sanctions are that A) US Gulf Coast refineries are frantically looking for alternate sources for the crude oil that Venezuela has been providing them with up until now and B) Venezuela, on the other hand, is struggling to find new customers. On top of this, the US was Venezuela’s key source of naphtha, which is the hydrocarbon mixture used for diluting crude. Without it, PDVSA won’t be able to prepare its crude oil for export. Rystad Energy forecasts that some operators in Venezuela will run out of the crucial diluent by March. However, not all hope is gone. Paola Rodriguez-Masiu from Rystad Energy believes that the impact of the sanctions will be significantly lower than Washington has predicted and says that: “The oil that Venezuela currently exports to the US will be diverted to other countries and sold at lower prices. For countries like China and India, the news was akin to Black Monday. They will be able to pick up these oil volumes at great discounts.” She adds that Venezuela exports 450,000 barrels of oil per day to the US – a little under half of its total output and the amount of new oil which will flood the markets. Mrs Rodriguez-Masiu also mentions that so far, oil markets have massively shrugged off this new oversupply as investors have been pricing in the crisis in Venezuela for quite a long time.