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Venezuela’s Falling Crude Oil Production Drives Oil Prices Higher

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Venezuela’s crude oil production 

Venezuela is OPEC’s eighth-largest crude oil producer. The EIA estimates that Venezuela’s crude oil production decreased by 45,000 bpd (barrels per day) to 1,465,000 bpd in April—compared to March. The country’s production has dropped by 515,000 bpd or 26% year-over-year.

The possibility of new US sanctions on Venezuela could slow down the crude oil production. News of more sanctions supported crude oil prices on May 21. Brent crude oil prices increased 0.9% to $79.59 per barrel on the same day. The United States Brent Oil ETF (BNO) tracks Brent crude oil futures. BNO increased 1% to $22.14 on May 21.

The Energy Select Sector SPDR Fund (XLE) increased ~1% on May 21. XLE seeks to track the performance of the Energy Select Sector Index.

Range Resources (RRC), Newfield Exploration (NFX), and Marathon Oil (MRO) account for ~2% of XLE’s holdings. The stocks rose ~6%, 4%, and ~2.3%, respectively, on May 21. The stocks were among the top percentage gainers in XLE’s portfolio on May 21.

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Venezuela’s production 

Venezuela’s oil production declined 57% or by 1,945,000 bpd from its record high in December 1997. The production declined by 835,000 bpd or 36% in the last two years. The country’s crude oil production is near a 15-year low.

Relatively low global oil prices, high debt, a lack of investment in crude oil exploration and production activity, electricity outages, and high inflation pressured Venezuela’s oil industry. Replacing technical people with a new military commander to run PDVSA and employee resignations pressured the country’s oil industry. PDVSA is a state-owned oil and natural gas company.

Impact 

Venezuela’s oil minister expects that the country’s oil production could rise to ~2,400,000 bpd in 2018. However, high debt and mismanaging Venezuela’s oil industry led to lower production in the last two years. A decline in Venezuela’s production will likely push oil prices higher.

Next, we’ll discuss US crude oil exports.

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