Just about the only thing Venezuela has going for it at the moment is its oil, and even that is in shambles. The country is locked in an economic death spiral—running out of food, medicine, and even toilet paper—but now, as the WSJ reports, production of its most important commodity just experienced its biggest monthly drop in a decade:
The decline of 120,000 barrels a day, to 2.37 million barrels a day, underscores the inability of state energy company Petróleos de Venezuela SA to maintain oil-industry investments, as the region’s largest petroleum exporter suffers from a debilitating cash crunch, widespread food shortages and civil unrest.In recent months, major oil services companies, including Halliburton Co. and Schlumberger Ltd., said they were cutting back on operations in Venezuela as the country struggles to pay multibillion-dollar debts with partners. […]Venezuela, which relies on oil for nearly all of its income, is facing severe dollar shortages due to low oil prices as well as more than a decade of profligate spending under the ruling socialist government, which used oil-sector money to fund social programs. The country’s oil output is far from the 6 million barrels a day that its officials have long targeted.
You don’t have to be a math genius or an oil industry insider to realize that the disparity between Venezuela’s ideal output numbers (6 million barrels per day) and the numbers it put out last month (2.37 million barrels per day) is a sign of something gone horribly wrong. May’s output was 5 percent under April’s and more than 10 percent below what Venezuela averaged in 2015.As dramatic as a month-to-month fall of 120,000 barrels per day is, it isn’t necessarily a surprise. Analysts predicted just such a decline last month when they pointed to the potential of widespread power outages affecting the country’s ability to drill its crude. Now it seems that cash shortages are preventing Venezuela’s state-run oil company from paying oil services companies for their necessary assistance in oil operations. In both cases, knock-on effects of Venezuela’s sputtering economy are hamstringing its most important industry.This has a circular effect, too, because the Venezuelan government relies on oil sales for roughly 95 percent of its export revenue. Less oil pumped means less cash brought in, which means more power outages and more cash shortages and—you guessed it—less oil pumped. Factor in the fact that crude oil prices are less than half of what they were two years ago and you get a recipe for desperation. And that’s exactly what we’re seeing.