Review of oil contracted being undertaken

Venezuela has placed a temporary suspension on most of its crude oil exports due to a review of the contractual terms that will be conducted under the new head of the country’s national oil company, PDVSA.

Reuters reported that the review aims to ensure there will be no payment defaults based on the fact that since the imposition of US sanctions on trade with Venezuelan, PDVSA had to resort to middlemen to market its oil and this has created complications with payments.

Sanctions on Venezuelan oil trade were introduced in 2019 by the Trump administration with the Biden administration later easing some of those sanctions.

This easing of sanctions came after last year’s resumption of talks between the government of Nicolas Maduro and the Venezuelan Opposition, which led to the signing of a US-brokered accord between the government and the opposition in order to resolve the country’s political turmoil. The oil suspension comes weeks after PDVSA restarted deliveries to the US after Washington gave Chevron the green light to return to its operations in the country provided the oil produced from these operations goes to the US.

In the meantime, Venezuela’s oil industry, crippled as it is by US sanctions, remains a big earner. In fact, Caracas is expecting income from oil exports to finance as much as 65 per cent of the state budget for this year.

More specifically, the Venezuelan government has tabled a budget of $14.7 billion for this year, of which $9.34 billion should come from PDVSA, up 14 per cent on 2022, according to Oilprice.com. This means that PDVSA will either have to boost production or pray for another surge in international oil prices.

Last year, production averaged 600,000 barrels per day (bpd) to 700,000 bpd, significantly lower than the target of the one million bpd President Nicolas Maduro had announced.

The contract review will likely affect both production and, consequently, exports of crude oil, thereby making a review at this time imperative.