Venezuela Increases Oil Output Due to Financial Crisis

Venezuela is going to increase its oil output by 400,000 bpd above its OPEC quota for the rest of the year to solve a crisis in government finances, sources at state oil company PDVSA said. "The new target is to export an average of 2.44 million bpd (of crude) for the year for PDVSA," according to the source. Those flows would be topped up by another 420,000 bpd of synthetic crude produced by upgrading heavy Orinoco oil. "The overproduction began in May," the source added. "I understand we are going to produce 400,000 bpd over the quota, and I think that we will continue as long as the money is needed. The country needs the increase in order to reduce the deficit," said another PDVSA official. Both sources spoke on condition of anonymity.

Deputy Venezuelan Oil Minister Bernardo Alvarez denied the increase. "Venezuela is producing to its OPEC quota," he said. OPEC's largest quota buster during the late 1990s, Venezuela has been one of the cartel's strongest price hawks since President Hugo Chavez took office in 1999. But relations between the government and PDVSA have been tense, contributing to a brief coup against Chavez in April. The Energy and Mines Ministry gave the instructions to ramp up output verbally, and PDVSA has requested a written order from the ministry, one of the sources said. The ministry wants PDVSA to jack exports up to 2.86 million barrels per day, on average for the year, including the 420,000 bpd of synthetic oil and the rest in crude, the sources said.

Since Jan. 1, its OPEC production limit has been 2.497 million bpd. OPEC next week is set to leave official output quotas unchanged although it could decide in September to lift supplies for the fourth quarter. Incoming PDVSA President Ali Rodriguez has said synthetics count as part of Venezuela's quota, although it is often not included in secondary estimates of the country's production. Venezuela also uses 460,000 bpd at home, which under OPEC rules are also part of its quota. Venezuelan government officials insist that quota obligations are being respected. Rodriguez said recently that if Venezuela was pushing any extra volumes in the market, the violation would be temporary. What is not clear is how much Venezuela is pumping at the moment and how much the new target would mean in terms of incremental supply.