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Venezuela’s PDVSA has suspended most of its crude oil exports for a review of the contractual terms that will be conducted under the new head of the company.
The review aims to make sure there will be no payment defaults, Reuters reports, noting that since the imposition of U.S. sanctions on the trade in Venezuelan, PDVSA has had to resort to middlemen to market its oil and this has created complications with payments.
Sanctions on Venezuelan oil trade were introduced in 2019 by the Trump administration, and the Biden administration’s decision to ease some of those sanctions came after the resumption of talks last year between the government of Nicolas Maduro and the Venezuelan opposition, which led to the signing of a U.S.-brokered accord between the government and the opposition in order to resolve the country’s political turmoil.
The suspension takes place just weeks after PDVSA restarted deliveries of oil to the United States after Washington gave Chevron the green light to return to its operations in the country provided the oil produced from these operations goes to the U.S.
Meanwhile, Venezuela’s oil industry, crippled as it is by U.S. sanctions, remains a big earner. In fact, Caracas said it expected income from oil exports to finance as much as 65 percent of the state budget for this year.
More specifically, the Venezuelan government has stipulated a budget of $14.7 billion for this year, of which $9.34 billion should come from PDVSA—up 14 percent on 2022.
This means that PDVSA will either have to boost production or pray for another surge in international oil prices. Last year, production averaged 600,000 bpd to 700,000 bpd, significantly lower than the target of 1 million bpd President Nicolas Maduro had announced.
Now, the contract review will likely also affect both production and, consequently, exports of crude oil.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com