Circling the Drain
Venezuela Hasn’t Hit Rock Bottom Yet

Venezuela’s oil production has been declining all year, and the prospects for the country’s most important industry aren’t looking any brighter in the coming months, either. The latest OPEC output data shows that while the petrostate has collectively upped its supplies, Caracas continues to struggle to contribute. Reuters reports:

The state-run oil company, Petroleos de Venezuela (PDVSA), is struggling to stem a production decline that has accelerated this year as a result of payment delays to suppliers, lack of investment in equipment, and poor planning in the country’s vast oil fields.

In the 12 months to June, Venezuela’s crude output fell 9 percent to 2.36 million barrels per day (bpd), while the Organization of Petroleum Exploration Countries (OPEC) has boosted its output by 4 percent, according to the group’s official figures. Venezuela’s oil minister and PDVSA president, Eulogio Del Pino, last month confirmed a 220,000-barrel-per-day production decline — around 8 percent — so far this year compared with 2015.

On the one hand, this is yet another example of the wide-reaching effects of Venezuela’s economic collapse. As its economy circles the drain and basic goods become scarce, oil companies are finding it difficult to obtain the kinds of services necessary to keep output up, in large part because those service firms aren’t being paid for their work.

But faltering oil production isn’t just a result of the country’s dire economic situation, it’s also a great example of why things have gotten so bad in Venezuela. Reuters continues:

Several PDVSA workers and local union members, in interviews with Reuters, said that an increase in equipment theft, maintenance delays, low salaries, and what they called a sense of “abandonment” of some oilfields are continuing to hit production. “I have never seen so much inefficiency in my 28 years in the oil industry,” said a worker of a drilling firm hired by Petroboscan, a project with participation of U.S. Chevron that is one of more than 40 joint ventures by PDVSA and foreign firms.

Venezuela is fortunate enough to have enormous reserves of one of the most valuable commodities on this planet, but inefficiencies, mismanagement, and financial malaise are all interacting with one another to effectively hamstring the country’s ability to get that crude out of the ground. And—given the fact that oil sales comprise about 95 percent of Caracas’s export revenues—faltering production is only going to compound Venezuela’s problems.

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