Virus upends assumptions on Venezuela

Venezuela's oil industry is vulnerable to outright collapse as global oil demand evaporates, but the incipient health crisis is allowing the US-sanctioned government to tighten political control, further crush dissent and lobby for easing US sanctions.

The Opec country's production of around 750,000 b/d in early March was already trending lower last week in response to storage and export constraints caused by US oil sanctions. Well shut-ins and a government lockdown to limit coronavirus contagion are now accelerating the oil industry's decline.

Venezuelan state-owned PdV has ordered essential workers to remain on the job. But it is unlikely that support teams from PdV's foreign minority partners, including Chevron, Spain's Repsol, Italy's Eni, Russia's state-controlled Rosneft and China's state-owned CNPC, will risk carrying on in the face of shrinking demand and profits.

Venezuela's flagship crude grade, 16°API Merey blend, was fetching a discount to Brent of only around $12/bl late last week, industry participants said. Ice Brent crude futures dipped below $30/bl today for the first time in more than four years.

As of 5am ET today, Caracas and seven Venezuelan states are locked down, including the oil-producing state of Zulia in western Venezuela. President Nicolas Maduro ordered the closure of all businesses, schools, banks and restaurants, with military enforcement. Most international air links are now cut off, including flights from Panama and the Dominican Republic that were used as layovers from virus-hit cities in Europe. Cuba flights are still underway.

At least 17 coronavirus cases have been recorded in a country with barely functioning hospitals, a shortage of medicine and healthcare workers, and a population weakened by years of malnutrition and limited potable water supply.

Economic activities exempted from the mandatory quarantine include essential oil operations, food distribution, health and security services and public transportation.

Neighboring Colombia closed seven official crossings with Venezuela over the weekend, but the measure is unlikely to impede migratory flow across the porous 2,019km (1,255 mile) border.

Maduro said the government has the capability and preparedness to check the virus, but officials at the presidential palace and ministries of health, defense and interior privately tell Argus that they fear the worst, especially in densely populated slums surrounding cities such as Caracas and Maracaibo.

Political doubts

The oil price crash and extraordinary virus-related measures have now undermined political assumptions inside and outside Venezuela.

As of last week, the US was still ratcheting up oil sector sanctions in an effort to unseat Maduro, support an interim government and lay the groundwork for free and fair presidential elections. A closely watched sanctions waiver for Chevron and four oil services companies seemed likely to be withdrawn upon its 22 April expiry. And as late as 12 March, National Assembly speaker Juan Guaido, who is recognized by most Western countries as interim president, was still summoning anti-Maduro protests in spite of social distancing recommendations. In one minor reprieve, the US Treasury Department indefinitely delayed a 22 March deadline for major credit card providers to sever ties with large Venezuelan banks.

In the past 72 hours the situation has changed dramatically, as it has in most of the hemisphere. Maduro is blaming sanctions for aggravating the health crisis, while the opposition is pointing the finger at Maduro for leaving Venezuela ill-prepared to cope.

US officials maintain that the sanctions have never prevented Maduro from importing food and medicine, and reject proposals to implement an oil-for-food program that they argue would be rife with corruption.

Critics say the sanctions leave the government with little revenue to import provisions. But aid has been quietly flowing in through the Pan-American Health Organization and other aid groups.

The outlook for holding National Assembly elections, which the constitution requires to take place by December, is now unclear.