Venezuela moves to cut oil output due to US export embargo

Venezuela’s state-run oil company PDVSA has started reducing crude production due to a lack of storage capacity caused by a US oil blockade. This blockade has halted exports and put additional pressure on the interim government as they try to maintain power amidst threats of military action from the US.

Caracas is currently in a political crisis under an interim government following the capture of President Nicolas Maduro and his wife by US forces. The country’s main source of revenue, oil exports, has come to a standstill due to a US blockade on tankers under sanctions and the seizure of oil cargoes last month.

Chevron’s oil shipments bound for the US, which were an exception due to a license from Washington, have also stopped moving since Thursday. This information was revealed through shipping data on Sunday.

President Trump announced the detention of Maduro and the government transition overseen by the US, along with the enforcement of an “oil embargo” on Venezuela.

PDVSA’s actions include shutting down oilfields or well clusters as onshore stocks increase and the company faces a shortage of diluents needed to blend Venezuela’s heavy crude for shipment.

The company has requested output cuts from joint ventures involving China National Petroleum Corp.’s Petrolera Sinovensa, Chevron’s Petropiar and Petroboscan, and Petromonagas. The sources mentioned that Petromonagas, previously operated by PDVSA and Russian state-run Roszarubezhneft, is now solely managed by PDVSA.

PDVSA and CNPC did not respond immediately to requests for comment. Chevron stated on Sunday that they are operating in full compliance with relevant laws and regulations without providing further details.

Workers at Sinovensa were preparing to disconnect up to 10 well clusters at PDVSA’s request due to an over-accumulation of extra heavy crude and a shortage of diluents. However, these wells could be reconnected in the future, as per the sources.

A portion of Sinovensa’s oil output is usually sent to China as a debt service payment. However, two China-flagged supertankers that were approaching Venezuela to load oil stopped at the end of December, according to LSEG shipping data.

At Petromonagas, workers started decreasing output late last week until diluent supplies through the pipeline resume, as per another source.

Meanwhile, Chevron has not cut product output yet as they still have storage capacity, especially at Petropiar, and their tankers are continuing to load. However, their vessels have not left the country’s waters since Thursday, and storage capacity is limited at Petroboscan, which could lead to future cuts, according to another source.

Despite not being targeted in the recent US strikes, PDVSA is struggling to maintain operations under the US pressure. In addition to the US ship blockade and forced price discounts, the company is still recovering from a cyberattack in December, as reported by workers.

The reduction in crude production could impact other operations, such as refining and domestic fuel supply, posing challenges for the interim government in generating revenue and maintaining stability.

Venezuelan Oil Minister Delcy Rodriguez, now serving as the country’s interim president, previously stated that Venezuela would continue producing and exporting oil despite US measures.

However, the US pressure has forced PDVSA to store oil in vessels since late December and slow down cargo deliveries at its main port, Jose. If loaded tankers remain unable to depart, more output cuts are expected.

On Sunday, no tankers were docked at Jose for export or domestic supply, as reported by TankerTrackers.com.

PDVSA, which increased imports of naphtha and light oil in the second half of last year to dilute its extra heavy crude output, faced challenges in receiving cargoes from Russia in December due to the US blockade.

Venezuela produced around 1.1 million barrels per day of oil in November and exported 950,000 bpd that month. However, US measures reduced shipments to approximately 500,000 bpd last month, based on preliminary figures from ship movements.