Crude oil prices have surged by about 20 percent in the last month, largely because of concerns that the loss of Venezuelan oil exports after U.S. sanctions would tighten the global supply. Venezuela now exports about 1.3 million barrels a day, and about 40 percent goes to the U.S. market, followed by India and China.
The sanctions against Venezuela are forcing U.S. refiners to find new sources of heavy crude. Chevron, Phillips 66 and Marathon have significantly reduced their purchases since 2017, the year before sanctions were imposed. But Valero and Citgo, the PDVSA’s U.S. refining unit, are still importing about 400 million barrels a day. U.S. refiners, which rely on Venezuelan heavy crude, will now have to find alternative supplies from Mexico, Canada or Columbia.
A country with the world’s largest oil reserves in the world, Venezuela is experiencing a torturous decline in exports, which have fallen from 2.5 million barrels a day in 2015 to 1.3 million in 2019, adding pressure on the global oil supply and pushing prices up. Another factor is the OPEC+ agreement to cut oil production by 1.3 million barrels a day, which was taken with a grain of salt. Now that the biggest oil producers have reduced their output, the explosive rally of oil prices may not be over yet.
Illustration By: John J. Custer