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Rystad Energy shares oil market update

Published by , Deputy Editor
Oilfield Technology,

As the US reimposes Venezuela oil sanctions, the door opens for special licenses. Rystad Energy’s Senior Vice President, Jorge León, provides an oil market update:

The Biden Administration on 17 April announced its latest move and held firm to its stance that without a fair election, there will be no extension of the relief. Is the 'maximum pressure' campaign back, or is there some middle ground this time? Rystad Energy believes it is more of the second.

The US Department of State in a press release dated 17 April stated that Venezuela has not fully met the commitments made under the Barbados Agreement whereby the government and opposition leaders laid the groundwork for a free, fair and internationally monitored presidential election in 2024.

In the last six months, however, a growing number of voices have raised concerns about the fairness of the upcoming presidential elections. The leader of the opposition, Maria Corina Machado, who won the opposition primary election in October with 93% of votes, was banned from participating in the presidential race by the country’s highest court in January this year.

On 22 March, Corina Yoris was announced as the substitute for Machado. Yet, the opposition was unable to register her for the presidential elections on time – the deadline was 25 March – owing to purported technical failures with the CNE's website.

Amid that backdrop, the US will refrain from renewing the General License 44, which had authorised transactions related to the oil and gas industry in Venezuela.

This means that it again becomes illegal for US-based companies to deal in Venezuelan oil.

However, a 45-day wind-down license has been granted to allow companies to gradually conclude their operations in an organised manner. Entering new business deals or making new investment will, however, not be authorised under this extension.

Even so, there are key points that stand out.

First, Chevron, the largest contributor to Venezuela's recent short-term growth, will still be allowed to produce and export volumes to the US under General License 41, which was granted in November 2022 and remains relevant.

It is noteworthy that Chevron has already hit 170 000 bpd of production and aims to touch 200 000 bpd by the end of this year.

Secondly, the Department very explicitly mentions it will consider requests by companies for special licenses to operate in Venezuela beyond the wind-down period.

The fate of separate US authorisations previously issued to Repsol, ENI and Maurel & Prom remains to be seen – but with the US seeming quite open to issue special licenses, we can expect some positive news.

Additionally, media reports cited a US official stressing that the decision to reinstate the sanctions “should not be viewed as a final decision that we no longer believe Venezuela can hold competitive and inclusive elections.”

Rystad Energy’s initial view on the impact that this decision will have on Venezuelan crude production is of around 120 000 bpd by the end of next year.

In the case that sanctions were not reimposed, the company’s updated view was that production could have increased steadily to 1.1 million bpd by the end of next year.

Production is now estimated to plateau at around 910 000 bpd this year then gradually decline to 890 000 bpd next year.

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