WEEKLY OIL REPORT
Week of 11 to 17 July 2020

PRICE

For the second consecutive month, prices have been on the rise, showing a recovery in prices quotes as physical market fundamentals continuing to stabilize: the strict compliance with OPEC+ cuts, the consequent decrease in oil oversupply, the drain on inventories, and the slow recovery in demand led by China and Asia, all of these have all impacted on price recovery, which has been above $40 a barrel in the last two weeks.

OIL PRICE (March-July 2020)

At the close of the European markets on Friday¹, July 17^th, the Brent and WTI references were quoted at $43.19 and $40.67 a barrel, respectively, up in 61% and 105% from their value in May, when the OPEC+ cuts came into effect.

BRENT PRICE
(May-July 2020)

WTI PRICE
(May-July 2020)

As of Thursday, July 16^th, the OPEC basket was trading at $43.80 per barrel, a 140% increase over May.

OPEP BASKET PRICE
(May-July 2020)

OPEC’s «Monthly Oil Market Report»² (MOMR) for July reflects the recovery in price since the OPEC+ cuts came into effect, and highlights the momentum in future marker prices due to the decline in the oil surplus and signs of recovery in «physical» market fundamentals. That said, uncertainty remains though, due to the continued increase in COVID-19 infections, especially in the U.S. and emerging economies.

The report forecasts that the average price in 2020 for the OPEC Basket will be $39.20 per barrel, a reduction of $0.45 per barrel from June’s estimates.

For Brent and WTI, June estimates for the average 2020 price were reduced (-1%) to $42.10 for Brent, and increased (1%) to $36.82 for WTI.

Among the factors influencing the slow recovery in prices, OPEC highlights the high inventories of oil reserves worldwide, mainly in the United States, as well as the estimations of a contraction of the world economy by -3.7%, which will experience a recovery only by 2021.

PRODUCTION

World crude oil production for June, according to the OPEC’s MOMR of July 14^th, stands at 81.21 million barrels per day (MBD).

These estimates are in line with those of the International Energy Agency³ (IEA). However, they are 5% lower than those calculated by the U.S. Energy Information Administration⁴ (EIA), which are of 90.8 million barrels per day; both of these estimations were mentioned in our previous Oil Reports⁵.

WORLD OIL PRODUCTION: OPEC AND NON-OPEC
1^st and 2^nd Quarter Averages (2019-2020)

In the first quarter of 2020, average world oil production increased by 0.5% over year 2019, with OPEC production falling by 7.2% over the same period.

By the second quarter of 2020, with the oil price collapse and the destabilization of the market, world production stood at 86.62 million barrels per day, a 9% reduction when compared to 2019, mainly due to OPEC+ production cuts, as well as the fall in production in U.S. and Canada.

GLOBAL OIL PRODUCTION
(June 2018 – June 2020)

World oil production for June decreased by 1.3 million barrels per day (25%) compared to May by OPEC countries, mainly due to the decision of OPEC+ to continue the 9.7 million barrels per day cuts⁶; the level of compliance announced by the organization was 107%.

The declines in supply were also driven by the 88,000 barrels per day drop in production from the member countries of the Organization for Economic Cooperation and Development (OECD) countries and by the 18,000 barrels per day drop from non-OECD countries’ oil production.

OPEC

OPEC production for June stood at 22.27 million barrels per day, according to the July MOMR; a reduction of 1.93 million barrels per day in relation to OPEC production of 24.2 million barrels per day in May.

PRODUCTION OPEC COUNTRIES
(January – June 2020)

In the first quarter of this year, mostly in January and February, OPEC showed a slight decrease in production in relation to 2019 levels. However, after March 6 OPEC+ meeting looking for a production agreement failed, March and April 2020 were marked by an overproduction of oil, particularly from the Persian Gulf countries (except Iran), due to the «price war» between Saudi Arabia and Russia, reaching the organization in April its maximum production level of the year (30.5 MDB).

However, faced with the collapse of oil demand due to the COVID-19 pandemic, the OPEC+ countries reached at their April 12^th meeting⁷ an unprecedented agreement to cut 9.7 million barrels of oil per day for May-June with May 1^st as effective date to implement the agreement; the cuts  would be extended afterwards to July.

OPEC oil production has fallen significantly since May 2020, in compliance with the OPEC+ production cut agreements.

OPEC COUNTRIES PRODUCTION
(June 2019 vs. June 2020)

OPEC’s oil production in June was 22.27 MBD, a decrease of 8.22 MBD from its April production of 30.49 MBD and a 4.35 MBD drop from its June 2019 production of 26.62 MBD; this reflects the organization’s strong commitment and cohesion in implementing the agreed production cutback policy to recover the oil price and stabilize market fundamentals.

Saudi Arabia, Kuwait and United Arab Emirates (UAE) made an additional cut⁸ of 1.1 MBD million barrels per day in June, which was in addition to their allocated quota for the month, in line with OPEC+ production cuts. Regarding Iraq, the country made a significant cut of 445,000 barrels per day with respect to its May production.

Among the OPEC-10 countries (signatories of the OPEC+ cutbacks agreements), only Congo, Equatorial Guinea and Gabon showed in June an increase in production of 55 thousand barrels per day compared to May.

On the other hand, in the OPEC as whole a fall in production is observed in Iran, Libya and Venezuela, countries that are not signatories to the OPEC+ production cuts, but that have had serious difficulties on their own to maintain their production levels.

Libya is experiencing an internal military confrontation that has blocked its oil production, originating a drop of more than 90% compared to 2019 data. In Iran, the strong sanctions imposed by the United States have caused the Iranian production to fall by 20% in relation to 2019. In the case of Venezuela, successive political interventions by the government in the national company PDVSA and an erratic management of the sector and the economy have caused a collapse of the country’s production, with a fall of 55% in relation to 2019 and of 83% in relation to 2015.

OPEC+

According to the July MOMR, oil production in June 2020 by non-OPEC countries stood at 62.68 million barrels per day.

The 10 non-OPEC countries signatories to the Declaration of Cooperation (DoC) had a combined production of 17.17 million barrels per day. The cut by these 10 countries was 3.56 million barrels per day⁹, of which 2.5 million barrels per day tallied to the cut made by Russia (which took its production in June to 8.66 million barrels per day, representing 100,000 barrels per day less than its production in May).

Other cuts within OPEC+ in June were made by Kazakhstan and Azerbaijan, which reduced their production by 130,000 and 30,000 barrels per day, respectively, when compared to May. For June, Kazakhstan’s production was 1.35 MBD and Azerbaijan’s was 550 thousand barrels per day.

THE JMMC MEETING OF OPEC+

On Wednesday, July 15^th, the 20^th meeting of OPEC’s Joint Ministerial Monitoring Committee (JMMC) was held¹⁰; there, it was reviewed the report¹¹ presented on June 18^th by the Joint Technical Committee (JTC), and the prospects for the second half of 2020 were assessed.

After reviewing the June production data of the OPEC and non-OPEC DoC signatories, a 107% compliance level with the cuts was confirmed.

The Committee welcomed the voluntary cut made in June by Saudi Arabia, UAE, and Kuwait (1.1 million barrels per day), which allowed exceeding the agreed cut by 107%. The three Gulf countries announced at the June 18^th meeting their decision to make this voluntary cut after reviewing the compliance results with the commitment to cut production in May, when 85% of what was agreed was achieved.

The Committee also welcomed the efforts of Angola, Gabon, South Sudan and Congo to comply with production adjustments and their compensation plans, and urged participating countries that had not done so to submit their compensation plans to the OPEC Secretariat by the end of July.

NON-OPEC+ PRODUCTION

As for the production of the Non-OPEC+ countries, belonging to the Organization for Economic Cooperation and Development (OECD), the IEA highlighted in its July report¹² that the biggest drop in production, outside the historic OPEC+ cuts, was that of the United States and Canada.
Furthermore, OPEC shows in its July report¹³ that production in 2020 for OECD countries will be 28.45 million barrels a day, 1.53 MBD less than in 2019. The estimated increase for 2020 will be 290,000 barrels.

The drop in production outside the OPEC+ cuts is estimated at 3.26 million barrels per day in 2020, for a total of 61.76 MBD, with a slight recovery estimated at 920,000 barrels per day by 2021.

Canada

Canada is one of the OECD’s leading oil producers, averaging 5.5 million barrels per day in 2019. On July 15^th the EIA noted¹⁴ that Canada had been the country in this group where production had fallen the most, recording a 20% drop in March compared to average production in 2019. For May, the drop in production was estimated at 0.5 million barrels per day, standing at 4.4 million barrels per day, although EIA forecasts that it will increase slightly in June.

Canada’s current production levels, estimated at 4.4 MBD, show a reduction of 1.36 MBD, similar to that recorded in April 2016, when the country was forced to lower production by 640,000 barrels per day due to forest fires in the Alberta region.

In addition, in 2019 the Canadian government implemented new production closures in the abovementioned region, which apply for the entire year 2020. The EIA estimates that average Canadian production in 2020 will be reduced by 400,000 barrels per day and in 2021 it will increase by 500,000 barrels per day from 2019 levels.

United States

According to the EIA’s weekly report «This Week in Petroleum»¹⁵, U.S. oil production was 11 million barrels per day as of July 10^th, a recovery of 1% from the average of the last four weeks and close to the levels of June 12^th, 2020.

Compared to the production levels reached in March this year, when the EIA recorded 13 million barrels per day, U.S. production has shown a 15.4% drop to this date. If U.S. current production is compared with the same period in 2019 (when it registered a production of 12.2 MBD), it shows a downward variation of 9.8%.

PERCENTAGE CHANGE IN OIL PRODUCTION
UNITED STATES
(June 2019 – June 2020)

OPEC in its June MOMR, estimates that U.S. production will fall by 1.08 million barrels per day this year, to place it at 10.28 million barrels per day in 2020, which is 595 thousand barrels per day more than EIA’s forecast, although 2 MBD below U.S. record production of 13 MBD, in March this year.

In relation to the growth of U.S. production in 2021, OPEC forecasts that it will reach 12.12 million barrels per day, a recovery of 18% from the levels estimated for 2020 and 5% less than the levels of 2019.

OIL PRODUCTION PROJECTIONS IN THE USA
(2019 – 2021)

Drilling activity in the United States

Baker Hughes, in its July 17^th report¹⁶ on the North America Rotary Rig Count, shows that active oil drilling in the U.S. is down to 180, marking it as the fourth week of relative stabilization of this indicator, but maintaining a 74% drop from the 682 drills operating in March of this year, before the COVID-19 crisis.

ACTIVE DRILLING IN THE U.S.A.
(March-July 2020)

The OPEC MOMR reiterates this trend and places it in the context of a 77% drop in the number of drills for oil extraction in the U.S. between July 2019 and July 2020, noting that, although the rate of decline slowed in May from April, and in June the changes are in single digits, in the 16 weeks since oil prices began to fall (March 2020), operators idled 498 drills in the U.S., which coincides with the drop in production.

As for shale oil extraction, the OPEC Report mentions that in all shale fields in the United States, the number of Spudded wells fell from 932 in June 2019 to 198 in June 2020, a drop of 78%. Started shale wells also fell, from 820 to 311 between June 2019 and June 2020 (a 62% difference), and in the same period 2019-2020 Completed wells fell by 81%, from 764 to 140 wells.

As we have mentioned in previous Oil Reports, the technical peculiarities of shale oil production -which depends on hedge funds- allow for a drilling scheme in which operators can leave wells unfinished until market behavior makes it viable to resume production.

The MOMR shows that, although all segments of the drilling activity show a notable decrease since March, by June operators have concentrated their activities on the completion and production of previously drilled wells.

SPUDDED, STARTED AND COMPLETED SHALE WELLS IN THE U.S.
(June 2019-June 2020)

ECONOMY

COVID-19

The number of people infected by the coronavirus reached 13.5 million worldwide by the end of this week¹⁷; the number of deaths is 584,000 and those who have recovered from the disease reach 7.72 million.

The United States once again ranks¹⁸ first in the number of people infected (3.47 million) and dead (137,000), with record numbers of infected and dead people in states such as California, Texas, Arizona, and Florida. The White House continues the confrontation with its own instance in the management of the coronavirus crisis: the Center for Disease Control (CDC), with news about the Department of Health asking hospitals to omit the CDC when sending COVID-19-related information, and the CDC pointing out that with the rigorous use of masks the epidemic would be controlled in a period of six to eight weeks.

The United States is followed by Brazil¹⁸ on the list of most affected (1.9 million infected and 75,000 dead), India (1 million infected and 25,000 dead), Russia (753,000 infected and 11,000 dead), and Perú (342,000 infected and 12,000 dead). It should be noted that among the top 10 most affected countries are also Latin America’s Chile and México.

This week, several countries mentioned their efforts to develop a coronavirus vaccine: Russia¹⁹, Australia²⁰, the United Kingdom²¹, the United States²², China²³, and India²⁴. For its part, the European Union (EU) reached agreements²⁵ with the pharmaceutical companies Roche and Merck to guarantee its member countries supplies of potential therapies for COVID-19 and to adapt the European regulatory framework to the current emergency in order to make the development, authorization and availability of vaccines more flexible and rapid.

OPEC’S MOMR FORECAST ON WORLD ECONOMY

The OPEC Oil Market Monitoring Report of July 14^th lowered its forecasts for world GDP growth to -3.7% this year, as opposed to -3.4% estimated in June; this mainly due to the contraction of the emerging economies of Brazil and India and the upsurge of COVID-19 cases in the U.S. The ongoing trade war between the U.S. and China is another factor of uncertainty regarding the recovery of the world economy.

According to the OPEC report, China‘s GDP growth for 2020 is 1.3% and is estimated to be 6.9% next year, leading the recovery of the world economy.
For Europe, with a fall of -8% of GDP expected for 2020, OPEC repeats its appreciation of positive results in the second half of the year and in 2021 (4.3%), due to a broader containment of COVID-19, the relaxation of confinements, the fiscal and monetary stimulus measures, and the increase in consumption.

European Union (EU) leaders are meeting in Brussels²⁶ on July 17^th and 18^th to reach agreement on an economic stimulus package to deal with the consequences of the coronavirus in their countries, but EU diplomats commented off the record that the talks could be extended until next Monday.

It should be noted that the proposal to be discussed at these EU meetings is based on the plan²⁷ proposed on July 10^th by the President of the European Council, Charles Michel, and consists of a budget, the Multiannual Financial Framework (MFF) for 2021-2027, of EUR 1,074 trillion; a Recovery Fund of EUR 750 billion for the next four years. (although it is also proposed that 70% of such Fund be disbursed between 2021 and 2022, based on criteria of population, unemployment, and GDP, amongst others); the Fund’s resources could be used for back-to-back loans and for expenditure channeled through MFF programs; the submission of national reform and investment plans by countries wishing to access aid and loans, which would be repaid between 2026 and 2058. Spain, Italy, and Portugal are united in defense of the 750 billion euro fund and against unanimous approval of the aid.

As for India, the report estimates a GDP contraction of -2.5% in 2020. The increase in cases of coronavirus in the country and the effects of the disease, as well as the measures taken by the nation to combat it, have consequences that are reflected in the decrease of production and consumption, added to the difficulties of the Indian government to access resources to overcome the crisis. The Report indicates that the forecast for 2021 is a growth of 6.8%.

MOMR FORECASTS FOR THE OIL-PRODUCING COUNTRIES

Various reports and news items reiterate the trend mentioned in our previous Oil Reports regarding the difficulties faced by oil-producing countries, OPEC and non-OPEC members, whose economies have contracted due to the fall in prices at the beginning of the year, as well as the consequences of the coronavirus pandemic reflected in the economic fabric at the global level.

In Russia, although economic development appears to have improved, the Report notes that the strong impact of COVID-19 on the economy is reflected in the drop in industrial production and retail sales. Foreign reserves grew thanks to fiscal discipline and rising oil prices and, from the second half of 2020, improved domestic demand, and oil and gas exports will lay the foundation for a GDP growth of 2.9% in 2021.

The International Monetary Fund (IMF) released this week regional updates²⁸ of its 2020 forecasts. In the case of the IMF-grouped MENAPOE countries (Middle East and North Africa Oil Exporters: Algeria, Bahrain, Iraq, Iran, Kuwait, Libya, Oman, Qatar, Saudi Arabia, United Arab Emirates, and Yemen), a 7.3% contraction in GDP is estimated for 2020, with a rebound in 2021 that places GDP at 3.9%. The difference of these percentages regarding the calculations made in April 2020 (3.1% and 0.8%, respectively) reflects, according to the IMF, the double whammy to the economy of these countries caused by the fluctuation of the price of oil, the cuts in production and the consequences of the quarantines linked to the coronavirus.

As for the countries that the IMF classifies as Caucasus and Central Asia Oil Exporters (CCAOE; includes Kazakhstan, Azerbaijan, Turkmenistan, and Uzbekistan), the fall in GDP projected for this year in the July regional update is not as pronounced (-1.1% vs. -0.8%), due to the rapid response of these nations to the pandemic, their lower quota of OPEC+ cuts, where applicable, and more diversified economies.

On the other hand, the governor of the Bank of Canada announced²⁹ on July 15 that interest rates will remain at historically low levels to respond to a projection of the economy «extremely uncertain» which will contract by 7.8% this year.

According to the «Review of the Economic Situation of Mexico» by Citibanamex³⁰ bank, the prediction for this country is more somber: with a drop in GDP of 11.2% for 2020 and with the bank considering that «…fiscal support to cushion the effects of the pandemic on the economy has remained limited«, the financial institution sees an average growth of only 2% between 2022 and 2024; México would recover the pre COVID-19 levels in 2025.

For Brazil, the OPEC MOMR estimates a drop in GDP of -6.7% by 2020 and a 2.4% growth in 2021. According to the Report: «…the combination of a strongly declining economy, further rising COVID-19 infections, political tension and a currency that is continuously weakening, has so far provided a fragile base for a 2H20 recovery.”

With regard to Angola, the Minister of Finance declared³¹ before the National Assembly that she expected a 7% contraction in the GDP of the hydrocarbon sector, thus projecting «…the prolongation of an undesired cycle of GDP contraction«, which would fall by 3.6% in 2020.

Fitch Ratings³² estimates that Nigeria‘s Gross Domestic Product will fall by 3% this year, with a recovery of the same percentage in 2021.

In the case of the United States, the MOMR estimates a GDP fall of -5.2% in 2020 and a recovery of 4.1% for next year. Moreover, requests for unemployment assistance in the United States, in the week ending July 11^th, reached the figure of 1.3 million, according to the Department of Labor³³ on July 16^th, which is far higher than the number of requests prior to the worsening of the pandemic (282,000 requests in March 2020).

U.S. UNEMPLOYMENT CLAIMS
(January-July 2020)

DEMAND

World oil demand in the second quarter of 2020 amounted to 81.95 million barrels per day, according to data published in the MOMR³⁴. Out of this total amount, 15.8 million barrels per day correspond to the demand for OPEC; this is 5.6 MBD more than in 2019.

In the second quarter of 2020, the COVID-19 pandemic hit the world economy with extraordinary effects on consumption, industry, mobility and tourism activities, causing a drop of 10.46 MBD compared to the first quarter of the year.

However, oil demand is expected to increase in the second half of 2020, due to the recovery of the European economy, the reopening of the European Union’s borders, the stability of the economy in China (the only country that will see its economy grow this year, according to the International Monetary Fund), and the important OPEC+ production cut agreement, in addition to the drop in production in countries outside the DoC.

OPEC estimates demand for 2020 at 90.72 MBD, a far cry from the 99.67 million barrels per day recorded in 2019. For next year, oil demand is expected to increase by 7 MBD per year, although this rebound -basically driven by the post-COVID-19 economic recovery- is insufficient to bring consumption back to the pre-pandemic levels.

Europe and India will push demand growth from July onwards. Meanwhile, the situation in the United States is becoming more complex, with a decrease in gasoline and jet fuel consumption. It is not expected that the US will recover in 2020 the demand levels it had before the pandemic hit.

Europe

The fall in oil demand in Europe in the second quarter of 2020 was the largest in the continent’s history, due to the fall in the consumption of gasoline, jet fuel, diesel, and fuel oil, all of this being negative consequences of the pandemic. According to the MOMR, in the second quarter there was a demand of 10.19 million barrels of oil per day, a decrease of 28.2% compared to 14.19 MBD in the same period in 2019.

For the second half of 2020 the outlook is positive. The progressive elimination of strict social, commercial, and mobility controls -after COVID-19 infections have passed the peak in Europe- is reviving the regional economy and the consumption of oil products. An increase of 3 MBD is expected for the next 6 months, bringing the 2020 estimate to 12.59 MBD (an annual decrease of 1.7 MBD), always taking into account as an indicator the variable that COVID-19 represents.

China

China’s demand in May 2020 amounted to 12.33 million barrels per day (0.47 MBD less than a year ago), according to the MOMR.

The Chinese economy has been recovering from the effects of the pandemic during 2020, but the economy still shows an annual reduction, which -according to the OPEC Report- will affect the consumption of several oil products in the second half of the year, projecting a decline in Chinese demand during that period.

Projected demand in 2020 will fall by 0.95 MBD, compared to 2019.

India

Demand amounted to 3.51 million barrels per day in May 2020, an annual contraction of 1.09 MBD according to MOMR data. However, a gradual recovery in demand is expected in the second half of the year, as the restrictions imposed by the effects of COVID-19 are lifted, and consumption demand in transport and industry increases.

India’s Purchasing Managers’ Index (PMI) stood at 30.8 in May 2020, going up by 3.4 from the previous month, reflecting a month-on-month recovery in the country’s economy. While the macroeconomic index suggests that it is still at recessionary levels, OPEC forecasts a sustained recovery for the remainder of 2020.

STORAGE

Last week, the IEA reported³⁵ that storage in OECD countries increased by 2.64 million barrels per day to reach 81.7 million barrels. OPEC, in its Report for this same period, estimates that the crude oil stocks of OECD countries stood at 91 million barrels, 10% above IEA estimates.

With regards to the United States, OPEC estimates that commercial inventories increased³⁶ by 158 thousand barrels -higher than the amount during the same period in 2019- to reach 1.4 million barrels, 13% more than the average inventories over the last five years.

The high levels of the U.S. commercial inventories are a factor that continues to affect the recovery of the oil price. The monitoring of the drainage of these inventories will be fundamental to estimate the behavior of the WTI marker.

According to OPEC, the increase in inventories was driven by the rise in crude imports, which in recent weeks has been offset by the reactivation of refineries, which, according to the EIA report, increased their activities to 78% this week.

U.S. OIL STORAGE

According to July 15^th EIA report³⁷, oil inventories in the United States decreased to 531.7 million barrels, a drop of 7.5 million barrels (1%) when compared to  July 3^rd report, although it is still 17% above the levels reported for the same period in 2019.

OIL STORAGE IN THE U.S. AND COVERAGE DAYS 2019-2020

Coverage days continue the declining trend; this week’s coverage being at 37.6 days, down slightly by 3% (1 day) from 38.6 days on July 3^rd, and 9% (3.7 days) below the May average of 41.3 coverage days.

The total U.S. storage, as of July 10^th, decreased by 0.4% to 2,108 million barrels, although it remains at the average level of 2.077 million barrels recorded for May.

Floating Storage

In its monthly report, OPEC notes that contango structures, now increasingly narrowed between Brent and Dubai references, have made floating storage less profitable, driving the sale of existing inventory to low prices.

Contango structures, when future prices are expected to be higher than the current ones, have been relieved from the adjustment of market fundamentals, as a result of the decrease in the oversupply of crude oil.

VENEZUELA

OPEC’s estimates on the situation of the Venezuelan oil industry continue to confirm the deterioration of the sector through its fundamental performance measurement index: oil production.

According to the data issued by OPEC in its monthly report for July³⁸, based on information from secondary sources, oil production in Venezuela decreased again in June to 356 thousand barrels of oil per day, therefore accumulating 6 years of continuous drop in the oil production rates in the country.

PRODUCTION OF OPEC COUNTRIES
(2018-2019-June 2020)

June production in Venezuela saw a 32% drop in comparison with May, when 573,000 barrels of oil were reported, and an 88% drop in comparison with year 2013, when it averaged 3.015 million barrels per day. The country has lost 2,659 MBD of oil production, an 88.2% decrease, over a 7-year period.

VENEZUELA’S OIL PRODUCTION
(2014-2020)

The current production of the country is equivalent to the production of 1930; this means a 90-year setback in terms of production activity.

HISTORICAL EVOLUTION OF OIL PRODUCTION
IN VENEZUELA

According to the data in the July OPEC MOMR, in terms of production Venezuela ranks at number 9 in the list of the 13 OPEC member countries, despite the fact that Venezuela is not a signatory of the voluntary cutback agreements. This is the third largest production reduction between May and June, a fall of 35% (199,000 barrels) compared to the previous month.

RANKING OF OPEC PRODUCING COUNTRIES
(June 2020)

Venezuela has dropped by five places in the OPEC ranking of producers, after being in fourth place in 2013, with a then-average production of 3 million barrels per day; the difference means a drop of 88% in its oil supply.

RANKING OF PRODUCER COUNTRIES IN THE
AMERICAN CONTINENT REGION (June 2020)

In the ranking of the oil-producing countries in the American region, Venezuela has fallen to the last place, being surpassed even by Brazil, Colombia, and Ecuador, countries that have never been big oil producers.

The drop in oil production in Venezuela, which began in 2014, is directly linked to the government’s political intervention in PDVSA, the national oil company, where more than 7 Boards of Directors have been appointed and staffed with managerial personnel without any experience or knowledge of the oil sector -their appointment as the head staff of the industry corresponded just to the need of the factions that support the government to fill quotas to reinforce their political power.

The company has progressively lost its productive and operational capacities; it must be kept in mind that PDVSA was once catalogued as the 5^th most important oil company in the world, with 231 billion dollars in assets and 84 billion dollars in public patrimony, and the country has the largest oil reserves in the planet, with 316 billion barrels of proven and certified oil reserves.

VENEZUELA’S OIL PRODUCTION AS PER PDVSA’S
EXECUTIVE MANAGEMENT SECTIONS
(Historic records of 2013 and June 2020)

All the oil areas of the country (West, East, and the Orinoco Oil Belt) have been affected by the collapse of the company and its management; mainly in the Oil Belt and the East, their production levels saw an 89% reduction –of 1.2 and 0.8 million barrels per day, respectively- when compared to year 2013. The West saw an 83% decrease when compared to 2013, with a loss of 646 thousand barrels a day. PDVSA Gas production fell by 78%, with a decrease of 19 thousand barrels a day compared to the historic figures reported in 2013.

The government, faced with its manifest inability to manage PDVSA, has opted to privatize the company, handing over to third parties the oil and the natural gas, as well as production operations and oil infrastructures (in clear contravention of the current legal framework).

The last Audit Commission and its authorities have not presented yet any plan for the recovery of the company, other than its pure and simple sale, which is difficult to do given the disastrous economic circumstances the country finds itself in, and the lack of legitimacy on the part of the authorities. And these are all fundamental elements to consider, especially when it comes to the international oil sector.

The disastrous management of the government at the head of PDVSA has led to the collapse of the company’s operations and productive capacities, dragging the country into the worst economic crisis in its history as a result of the lack in oil revenues, which in the period between 2004 and 2014 exceeded 700 billion dollars. This oil income is fundamental for the national economy, which is highly dependent on oil.

The Venezuelan oil industry is going through the worst crisis in its history.

Fuel shortage

The fuel shipment from Iran³⁹ during May was only a palliative for the serious fuel crisis that Venezuela is going through; once again, there are long queues of vehicles trying to refuel, especially in the country side of the country. Furthermore, the military authorities administer the sale of fuel in an irregular manner, which has led to the spread of the black market and fuel smuggling.

As announced by the government, the distribution of fuel will be transferred to others in the private sector, although that will mean taking away the gas stations from the already existing private sector that has managed them until now.

Just like the maduro-era «bodegones de comestibles» (dollar-only grocery stores) sell food at international prices that has to be paid in U.S. dollars, since May 2020 gas stations have been selling fuel at international prices ($0.50 per litre) payable in foreign currency; meanwhile, the country’s minimum wage is 3.4 dollars a month.

Moreover, in other gas stations, where sales are very irregular and poor quality fuel is offered, they continue to apply the officially-established subsidized gas price, which has also suffered a significant increase of 8,333,332.900% (Bs. 5,000 per liter), as we mentioned in our June 7 Oil Report⁴⁰.

Currently, long queues at gas stations are part of the daily life of Venezuelans, who denounce through social networks that most of the service stations that sell fuel at subsidized prices are closed⁴¹, while those that sell it at international prices are dispensing limited quantities. This situation is even worse in the Venezuelan Border States, where chronic fuel shortages have been experienced since 2018.

The country’s refinery system, with a processing capacity⁴² of 1.3 million barrels per day and a production⁴³ at the end of 2013 of 1,127 MBD, is operating at only 10% of its capacity and several units and refineries are paralyzed, despite successive announcements and failed attempts by the government to reactivate them.

Labor conflict

The labor situation of PDVSA’s workers has not only deteriorated significantly in the last five years, but violence and persecution have also been imposed within the country’s largest company, which has resulted in that only less than 80,000 workers remain in the company today, out of a workforce that by 2014 had more than 146,000 workers.

Before year 2015 oil workers enjoyed decent wages, access to social benefits and to the company trust, access to loans to buy housing, to decent medical care and health insurance provided by SICOPROSA office; also, access to international health insurance, provision of work uniforms, a canteen in all administrative and operational areas with granting to balanced food, signing of the Oil Collective Bargaining Agreement every two years with retroactive benefits, and an Electronic Food Card (TEA; Spanish abbreviation) that covered family expenses for the basic food basket. The worker had ideal conditions for the best performance of his work and, above all, he/she was held in high esteem and participated in the country’s political and social events: they were not indifferent to the fate of society.

Today, the oil worker has been stripped of his/her dignity and prestige, they have been discredited in a fierce campaign operated by the government, and oil workers have been denied political participation and social prominence. In addition, he/she has been deprived of their rightful benefits as workers by the current government, which exercises violence and political and labor persecution against oil workers.

There is no investment in tools and equipment for work safety, and the government eliminated access to health provided by SICOPROSA (Contributive System for the Protection of Health), as well as it deprived oil workers of their right to enjoy granted food with the canteens, thus violating the fundamental rights of the workers, contemplated in the Oil Collective Bargaining Agreements. Nowadays, the weekly salary of an oil worker in Venezuela is equivalent to 0.5 U.S. dollars; he/she has no access to the trust fund or social benefits; the TEA Food Card is not enough to buy 2 cartons of egg; the workers are blackmailed with the access to or denial of the CLAP Food Box, and there are more and more accidents in the oil installations and in the refineries.

The oil workers have been expressing their various demands and discontent because of the progressive dismantling of PDVSA by the government, the deterioration of their working conditions, the destruction of their wages, and the violence and persecution to which they are subjected. Recently, workers from PDV Marina presented their massive resignation, denouncing an attack on labor rights by the government, as well as the arrest of their colleague Bartolo Guerra, a tug captain, who was imprisoned for claiming that he had 40 days in a row landing in the port. Hundreds of oil workers are still in prison, isolated, without trial, and thousands more live the daily persecution by maduro government.

Venezuela: alarming figures

The huge setback that the Venezuelan economy has suffered in the last 7 years is undeniable, as registered by international organizations such as the United Nations (UN) and the Economic Commission for Latin America and the Caribbean (ECLAC) ⁴⁴

The serious economic situation that affects Venezuela started and has been developed well before the COVID-19 pandemic, as it can be seen in these figures: the GDP had an accumulated fall of 64% in the period 2015-2020; there is an accelerated hyperinflationary process, which the same Central Bank of Venezuela located⁴⁵ at 9,585.5% by 2019, and a mega-devaluation, recorded in 2019 by the IMF at 98.6%, bringing the minimum wage in the country to US$3.4 per month, the lowest in the Western Hemisphere and placing 79% of the Venezuelan population below the poverty line of US$1.9 per day, according to United Nations definitions.

In the last ECLAC report of July 15⁴⁶, «Facing the growing effects of COVID-19, for a reactivation with equality: new projections», it is estimated that the country’s GDP will fall by -26%, making Venezuela the most affected country in the region.

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH PROJECTIONS 2020

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