Venezuelan Oil Production Around 920,000 B/D, Fitch Says
sg.biz.yahoo.com Saturday January 25, 7:35 AM By Stephen Parker Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Venezuela's oil production has climbed to nearly 1 million barrels a day, with oil exports reaching roughly half that amount as the country's general strike continues, Fitch Ratings analysts said Friday.
The strike, which began Dec. 2, throttled back the major oil producer's output and exports during much of the last two months. While the government has restored oil production to roughly 900,000 to 920,000 b/d, the lack of foreign oil tankers has impeded exports - now seen at roughly 500,000 b/d - as serious safety and insurance issues linger, Fitch analysts said in a conference call.
Venezuela's troubles have reverberated throughout the world, with international oil companies losing production revenue and U.S. refiners seeing profits curbed by higher crude costs. Even after the conflict is resolved, Venezuela will face a raft of challenges in rebuilding its oil industry, analysts and consultants said.
"The crisis in Venezuela has created one of the largest shocks in the history of the oil market, exceeding the anticipated disruption resulting from a war with Iraq," Goldman Sachs analysts said in a report this week. "So far, the outage in Venezuela has cost the market nearly 110 million barrels."
The top 10 international oil companies with operations in Venezuela are losing a combined $6.7 million a day in net revenue because of the strike, the Wood Mackenzie energy consultancy estimated this week.
Among those companies hardest hit are TotalFinaElf (TFE), which is losing around $1.4 million a day; ConocoPhillips (COP), with losses of about $1 million a day; ENI SpA (E), losing $870,000 a day; ExxonMobil (XOM), losing $770,000 a day; and ChevronTexaco Corp. (CVX), losing $640,000 a day, Wood Mackenzie said.
Many U.S. refiners - particularly those on the East and Gulf coasts - have also seen refining profit margins shrink as heavy crude supplies are limited and oil prices soar on the shortfall, Fitch analyst Bryan Caviness said.
"Venezuela will continue to put a strain on refiners," Caviness said, citing the 45-day transit time for increased Saudi oil exports to reach U.S. shores.
The additional Middle Eastern supplies include lighter- and medium-grade crudes, which don't have the same economic advantages as heavier Venezuelan crude, Caviness said.
With U.S. crude inventories at critically low levels, Goldman Sachs said refiners are faced with a dilemma. They'll have to cut production beyond the normal season decline, which could cause problems in the gasoline market this summer, or they'll likely need a release of national Strategic Petroleum Reserves oil to avoid stock-outs, shortages and price spikes.
Venezuelan President Hugo Chavez's government and opposition leaders have agreed the country's oil production is rising, but they differ widely on the amount.
As reported, dissident staff of Petroleos de Venezuela, or PdVSA, estimated Friday that crude oil output had risen to 855,000 b/d, mainly due to an increase in the eastern part of the country.
Chavez said Sunday he expected output to reach about 2 million b/d by the end of this month.
"There's significant disinformation and misinformation taking place in Venezuela," Fitch analyst Alejandro Bertuol said. "Most oil-related activities remain hindered."
Even as Venezuela gradually increases its production, the massive U.S. military buildup in the Middle East is seen helping to keep oil prices above $30/bbl, Caviness said.
Oil prices closed $1.03 higher at $33.28/bbl Friday on the New York Mercantile Exchange. Traders and analysts said the rally was sparked by fears that a war with Iraq could substantially disrupt Persian Gulf oil exports, and supported by continuing unrest in Venezula.
Once Venezuela's strike is over, reactivating wells and bringing output back to levels approaching the roughly 2.6 million b/d produced in the final months of 2002 will present many challenges. Venezuela is likely to struggle as its hydrocarbon industry experiences a loss of highly trained workers, Bertuol said.
The situation could be a boon for foreign oil-services companies, however, as they're likely to find remedial work opportunities in Venezuela, said Fitch analyst Patrick McGeever.
Even so, the International Energy Agency, which coordinates use of the industrialized world's strategic oil reserves, estimates Venezuela may have permanently lost 400,000 b/d of production capacity because of the strike. The IEA also warned this month that Venezuela's oil production would take months to come back on stream and faces a "period of decline."
In the short term, PdVSA performance and reliability will remain casualties of the political crisis, Fitch analysts said.
"Systemic roots of the current political crisis will make it difficult to recover market confidence," Bertuol said.
Over the medium term, Venezuela is expected to remain an important player in the global oil market, but the strike will result in major spending reductions, particularly for Venezuelan natural gas and petrochemicals projects, Fitch analysts said.
-By Stephen Parker, Dow Jones Newswires; 201-938-4426; stephen.parker@dowjones.com