Venezuela Oil Output Weathers Chevron Exit With Diluent Spree

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(Bloomberg) — Venezuela’s oil output has been more resilient than expected since the US forced Chevron Corp. to wind down operations in the country, with a last-minute shopping spree for a key production supply helping cushion the blow.

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State-owned Petroleos de Venezuela SA has maintained average output of about 1.1 million barrels a day in June and July, according to figures seen by Bloomberg. Chevron, which pumped nearly a quarter of Venezuela’s barrels, lost key licenses to operate in the country near the end of May as the Trump administration sought to pressure President Nicolas Maduro.

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Venezuela’s production was expected to decrease shortly after Chevron’s exit because the company imported much of the diluent that PDVSA needs to help the heavy crude from the country’s Orinoco fields flow through pipelines. But the country stocked up on the material before the US deadline for Chevron to halt major works, and those stockpiles are helping prop up PDVSA’s output.

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Imports of diluent soared to 97,000 barrels a day in May, the highest in more than four years, data compiled by Bloomberg show, with all of those supplies coming from the US.

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With sanctions now having cut off that flow, PDVSA may have to resort to less-than-ideal alternatives to diluent naphtha, such as condensate from Iran and heavy naphtha from Russia, both of which are also subject to sanctions. The US has been considering tariffs on buyers of Russian supplies, adding another layer of risk.

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A PDVSA press official did not respond to requests for comment. 

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Venezuela received its first cargo of naphtha since May on Saturday. A vessel is discharging 704,000 barrels of naphtha from an unknown provider in the port of Jose, according to a PDVSA document seen by Bloomberg.

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Venezuela relies heavily on imported diluent because the limited amounts it produces are used to make gasoline for the fuel-starved nation, leaving 11 out of 17 fields in the Orinoco Belt dependent on imported naphtha, according to a PDVSA document. Foreign companies, including Italy’s Eni SpA and Spain’s Repsol SA, also used to help with gasoline imports to ease shortages for drivers but are now prevented from operating in the country due to the sanctions. 

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“It’s difficult to know how long the inventory will last,” said Francisco Monaldi, the director of the Latin American energy policy at Rice University’s Baker Institute for Public Policy in Houston. Inventories will begin to decline in the next two to three months, he added. 

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