Venezuela's oil production tumbles as economic crisis worsens

CARACAS (Reuters) - Hungry Venezuelans are rioting and looting amid worsening food shortages, but the OPEC country’s remote oil fields have been sheltered from the social unrest so far.

Oil pumps are seen in Lake Maracaibo, in Lagunillas, Ciudad Ojeda, in the state of Zulia, Venezuela, March 20, 2015.REUTERS/Isaac Urrutia/File Photo

But Venezuela’s blistering economic crisis is hitting them full on.

Output in the country, which has the world’s largest oil reserves, dropped to 2.37 million barrels per day (bpd) in May, according to OPEC data provided by Venezuela.

That’s down some 5 percent from April and nearly 11 percent from 2015’s average, data showed on Monday, piling more stress on oil-dependent Venezuela as it wrestles with the economic crisis. The drop could also help erode a supply glut that has weighed on prices.

Amid a cash crunch, Venezuela’s oil industry is suffering from shortages of spare parts, the retreat of oil services companies due to unpaid bills, maintenance issues, and crime, according to workers, union leaders, and foreign executives.

Oil workers earn only a few dozen dollars a month at the black market rate due to the bolivar currency’s rapid tumble on the parallel market. Many lives now revolve around the quest for food, fostering worker absenteeism and a brain drain.

“Workers’ moods are in the dumps,” said Francisco Luna, a union leader in the oil-producing area of Lake Maracaibo. “Every day it’s worse. Maintenance is lacking, equipment is lacking.”

Officials at state-run oil company PDVSA did not respond to a request for comment. The company has blamed problems on saboteurs and international smear campaigns.

Separately, Caracas is in talks with China to obtain a grace period in its oil-for-loans deal that would improve its capacity to make bond payments amid the crisis, sources told Reuters.

As Venezuela’s recession appears set to worsen, many wonder how much output could slide and whether unrest could encroach on operations.

Energy consulting firm IPD Latin America caused waves earlier this year when it forecast that output could slip to 2.35 million bpd this year, a figure on par with last month’s output.

That would be even lower than average production in 2002 and 2003, when Venezuela was shaken by a massive oil strike.

Even production in the Orinoco Belt, a promising swath of extra-heavy crude deposits in the Venezuelan savannah, is down.

Beyond output, Venezuela’s refineries and ports have suffered problems due to equipment failures and power cuts. And payment delays led to less diluents for Venezuelan crudes.

Wall Street is also monitoring the lower output amid default fears, although President Nicolas Maduro insists Venezuela will honor all debts.

“In the short term, it will negate some of the recent oil price rise and make the bond payments in late-2016 and 2017 more difficult, though not necessarily impossible,” said a U.S.-based fund manager.

Additional reporting by Marianna Parraga; Editing by Jeffrey Benkoe