Venezuela’s Regional Oil Diplomacy Cools as Crisis Looms Large

(Bloomberg) -- Plagued by triple-digit inflation, political turmoil and a recession, OPEC member Venezuela has scaled back an 11-year program that allows its allies in the Caribbean and Central America to buy its oil at subsidized prices.

Latin America’s largest oil exporter has been favoring shipments to Asia and the U.S. while trimming sales to Petrocaribe, a program in which Petroleos de Venezuela SA, the state oil company, sells oil to members under low-cost financing, Mara Roberts, a New York-based analyst at BMI Research, said in an e-mail.

“Petrocaribe’s terms are unprofitable, so PDVSA is making partners such as China, India and the U.S. a clear priority,” Roberts said. “Distributing subsidies is not a good idea for cash-strapped PDVSA.”

The Petrocaribe program, created in 2005, was seen by many as an attempt by the late President Hugo Chavez to make Venezuela a regional power. Exports to members have dwindled over the years. Cuba, the main Petrocaribe buyer, is importing 83,500 barrels a day this year from Venezuela, down 20 percent from last year, BMI data shows.

Shipments to China, India and the U.S., the three top buyers of Venezuelan crude, rose to 1.54 million barrels daily this year through July, up 2.7 percent from the 2015 average, according to official data compiled by Bloomberg. Exports rose even as the nation’s production fell to an almost six-year low of 2.19 million barrels a day in August, according to a Bloomberg survey of companies and oil-market contacts.

PDVSA didn’t return calls and e-mail seeking comment.

Exports to Asia and the U.S. have been advancing amid lower domestic consumption as Venezuela struggles with recession for a third year, Roberts said. “In February, Venezuela raised gasoline prices for the first time since 1996 which, combined with the sharp rise in inflation, has likely freed up some crude supplies for export.”

Oil production in Venezuela fell amid low prices and unpaid bills to drilling service companies. Brent has fallen more than half in the past two years. The November contract settled Thursday in London at $47.65 a barrel, up 82 cents.

To contact the reporter on this story: Lucia Kassai in Houston at lkassai@bloomberg.net.

To contact the editors responsible for this story: Margot Habiby at mhabiby@bloomberg.net, Richard Stubbe, Susan Warren