Venezuela—one of the world’s earliest and (at one time) largest oil producers, as well as a founding member of OPEC—could soon be producing close to zero barrels of oil, according to a new analysis by IHS Markit.
Venezuelan crude oil production is currently 100,000-200,000 b/d and falling. Production was around 650,000 b/d just a year ago and had been as high as 2 million b/d as recently as 2017. It is now conceivable that the country could soon be producing zero barrels, or very close to it.
“Never before has a former major oil producing country seen output fall so low for so long. In Venezuela’s case, if there is any surprise it is that the disintegration did not happen faster,” said Jim Burkhard, Vice-president and head of oil markets, IHS Markit.
The country is now the third smallest producer among OPEC’s 13 members, just ahead of Equatorial Guinea and war-torn Libya.
Venezuela’s production fall—the product of decades of decline and decay—has been exacerbated more recently by the COVID-induced oil price collapse of 2020, US sanctions, and limited domestic oil storage.
While the slide toward zero production is a historical milestone, Venezuela’s demise as an oil producer will have little to no impact on global oil markets given the much larger shifts in world oil demand and supply wrought by COVID-19 and its repercussions.
“In terms of market impact, if you had to choose a time for the fall of a major global oil producer—a founding member of OPEC, no less—this would be it. There is ample production capacity around the world to satisfy the recovery in world oil demand that has been underway since May,” said Burkhard.
Given the size of the country’s reserves, a restoration of production somewhere in the future is always a possibility. But the state of Venezuela’s infrastructure, ongoing US sanctions, and lower global demand make it increasingly unlikely.
“The decay of Venezuela’s oil industry has been due to poor management, not lack of below ground oil resources. It is conceivable that a rebuilding of infrastructure under appropriate investment and security conditions could return the country to the ranks of major oil producers.”
“Any recovery would take a considerable amount of time given the degree of dilapidation throughout the country’s energy infrastructure. It looks like close-to-zero oil production is Venezuela’s new normal for the foreseeable future,” said Ha Nguyen, director of global oil supply, IHS Markit.