Oil and Gas

Price crash puts Colombian, Venezuelan crude blends underwater

HOUSTON, Jan 21 (Reuters) - A more acute crude price slump this month has put several South American countries in the difficult position of selling oil for less than what it costs to produce, according to traders and sources at three companies in Colombia and Venezuela.

So far, the most affected crudes are blends formulated with naphtha and other imported diluents. But if the price rout that shows few signs of ending soon persists, other grades could be hit too, the sources added, potentially putting more pressure on public finances in the oil-dependent countries.

Some of the most known South American blends, which normally trade at significant discounts to benchmark Brent that has tumbled to under $30 per barrel, are fast becoming a type of ‘negative oil’ in a global glut.

Red numbers have also affected Canadian grades and U.S. shale crude, a change that increases the pressure on producers to consider shutting wells rather than running at a loss.

Among the varieties already affected in South America are Venezuela's Diluted Crude Oil (DCO), which is now selling around $15 a barrel and Colombia's best seller Vasconia, offered at below $21 in spot deals LCO-VAS, sources from producing firms said.

South America’s fourth largest oil producer, Ecuador, is also under breakeven point, President Rafael Correa said, which is forcing the country into fiscal cuts.

“We have a crude price that is not even covering production costs, which are $24 per barrel,” Correa told journalist on Wednesday.

The latest figures from Venezuela’s state oil company PDVSA show the average production cost for all its crudes is $18 a barrel, while Toronto-listed Pacific Exploration & Production , Colombia’s largest private operator, said its production cost including diluents, transportation and taxes averaged $20 to $22 in the third quarter of 2015.

“Last week we were right at the breakeven point,” said a source from Pacific. “But we are currently below that line.”

Pacific, Colombia’s state-run firm Ecopetrol and PDVSA buy diluents on the open market, where naphtha and natural gasoline prices are currently around $35 per barrel, to make exportable blends.

The firms did not immediately respond to a request for comment.

Venezuela exports around 1.9 million barrels per day (bpd) of crude, Colombia 750,000 bpd and Ecuador 430,000 bpd.


Before the latest price tumble of 20 percent this month, Ecopetrol and Pacific reduced sales of heavy Castilla LCO-CAS while increasing purchases of diluents to formulate more medium Vasconia, which is better priced but has a bigger imported component.

The strategy, however, has not been enough to halt the revenue slide, according to the sources. High taxes and royalties, along with costly logistics keep production costs relatively high, they added.

Venezuelan President Nicolas Maduro asked PDVSA on Tuesday to make a big effort to bring down production costs. “How many countries in the world can maintain oil production at $22 per barrel? A few or none,” he said.

In Venezuela, one of the crudes still making some profit is so-called syncrude, which can be sold at a premium after running through upgraders that turn extra heavy oil into a lighter one.

Traditional Boscan heavy crude, meanwhile, is also below breakeven levels estimated to be about $16 a barrel.

“If Boscan heavy crude is being sold around $12 per barrel, Orinoco belt’s DCO cannot have any profit after taking diluent costs into the account,” one of the sources said.

A barrel of a Venezuelan DCO made with naphtha is usually sold 15 percent cheaper than a crude blend, a government source confirmed. So while Venezuela’s price for Merey blend, an extra heavy crude from the Orinoco belt produced by PDVSA and its joint ventures, is currently around $17.25 a barrel, DCO cannot be sold over $15 per barrel.

According to Deutsche Bank, which has warned about Venezuela’s “dangerous” oil prices, a $30 average crude price in 2016 would widen the country’s foreign exchange deficit to $34.2 billion from a previous deficit estimated at $18 billion.

Reporting by Marianna Parraga in Houston, with additional reporting by Alexandra Ulmer in Caracas and Alexandra Valencia in Quito; Editing by Terry Wade and Tom Brown