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Opec, Russia downplay Venezuela output decline

06 Mar 2018 20:45 GMT
Opec, Russia downplay Venezuela output decline

Houston, 6 March (Argus) — Senior officials from Opec countries and Russia said that Venezuela's declining output does not present a challenge to the market.

A steep drop in Nigerian output and Venezuela's worsening upstream problems pushed Opec production to a nine-month low of 32.14mn b/d in January. Venezuela's output in January was 1.55mn b/d according to secondary sources — a 23pc decline on the year.

"There is no plan to do anything (about Venezuela's output) at this point," Saudi oil ministry adviser Ibrahim Al-Muhanna said today at the CERAWeek conference in Houston. "The market has not reached the point of balance … there is no need to address it this year."

UAE energy ministry undersecretary Matar al-Neyadi, speaking at a Columbia University Center on Global Energy Policy forum last week, likewise downplayed the Venezuela crisis. "I do not think it will be major," al-Neyadi said. "If it happens, the market will react."

Opec's remaining members should observe their own obligations under the agreement with non-Opec producers regardless of what is happening in Venezuela, Russian first deputy energy minister Alexei Texler said at CERAWeek.

"The implementation of the agreement from general levels is a must," Texler said. "The most important thing for us is that Opec implements its obligations fully."

The IEA in its Oil 2018 report released yesterday warned that Venezuela's production could plunge by nearly 700,000 b/d by 2023, from the already low levels reached in 2017. "There may be reasons for us to revise down expectations on Venezuela even further," IEA executive director Fatih Birol said.

Restoring Venezuela's production would prove a difficult task, RBC Capital Markets chief commodity strategist Helima Croft said at the CERAWeek conference.

"We are looking at permanent erosion of their production," Croft said. "Venezuela's institutions are eroded and debt levels are massive. When you get in a crisis, those barrels do not come back."

Croft said she expected Venezuela's output to continue declining incrementally, rather than experience a sudden cataclysmic decline that would be more likely to prompt a response from other Opec members.

Venezuela presents the largest supply disruption risk among Opec members, Abu Dhabi's state-owned Adnoc chief economist Kamel Ben Naceur said. The IEA projections indicate a potential decline to 1mn b/d in 2023 for the country, "a dramatic situation," Ben Naceur said.

Declining Venezuelan production resulted in equally steep declines in imports of crude from that country into the US, even as Washington is weighing sanctions targeting Venezuela's oil sector, on top of targeted individual and financial sanctions.

The US administration has not finalized the new sanctions, even though they are expected to first prohibit exports of light sweet crude and naphtha from the US.

"This goes back to the careful tailoring of sanctions," deputy assistant secretary of state John McCarrick said today. The US is "not inclined to date … again, that is to date … to target the energy sector because we have concern not only for Venezuela but also for neighboring countries that depend on Venezuela's supply for their own needs."