Venezuela’s oil output decline accelerating: Citi

There’s a real risk production declines in Venezuela will accelerate and could potentially drop under 1 million barrels per day (MMBPD) by year-end, Citigroup analysts said in a report issued late Tuesday, Kallanish Energy learns.

The report, overseen by Edward Morse, global head of Commodities Research, estimates crude production in the South American OPEC member-country dropped by 300,000-400,000 barrels per day (BPD) in 2017, compared to the previous year. Total production last year was roughly 1.7-1.8 MMBPD.

“Venezuela’s crude problems are multiple, but fall into the three main categories of operational financing, export quality and infrastructure disruption,” the report said, adding another 300,000 BPD reduction is expected this year.

The figures match other experts’ estimates previously reported by Kallanish Energy.

The rationale behind the assumptions is quite simple: access to secondary debt markets is all but cut off given the default risk in Venezuela and, as overdue bond payments pile up, payments to U.S. oilfield service providers and drillers have been cut, the analysts said.

Despite some support from Chinese and Russian funding and drilling companies, additional support from China has dried up and if assistance from Russia is restricted, Venezuela’s oil production decline would accelerate.

Citi also pointed to the challenges surrounding crude production in the country, over and above rapidly declining supplies. “An inability to get crude out of the country could also materialize due to rising customer complaints regarding variable and poor crude quality,” it said.

Disruptions to oil exporting infrastructure such as pipelines and terminals may also occur due to malfunctions after years of “chronic underinvestment” in said infrastructure, or potential domestic unrest.

Despite having the largest crude oil reserves in the world, Venezuela has seen its oil production fall from 2.37 MMBPD in 2014, to 2.15 MMBPD in 2016 – a trend set to continue unless drastic changes are made to the country’s pollitical heirarchy.

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