Published by Economist Intelligence Unit

Event

Venezuela is to receive its first ever shipment of imported crude oil later this month to use as a blending agent for its extra heavy crude output from the Orinoco Belt.

Analysis

The Algerian Saharan Blend, purchased from Algeria's state oil company, Sonatrach, will be mixed with Venezuela's heavier crudes to produce a cheaper and more marketable product. Currently, the country's heavy crudes are mixed with expensive naphtha to form diluted crude oil. For years Petróleos de Venezuela (PDVSA, Venezuela's state oil company) has bought refined products such as naphtha in order to maximise revenue from its heavy crudes. The move will raise the price of each barrel by around US$30, according to PDVSA.

The decision to import crude is an economically sensible one for PDVSA. However, it will further damage the popularity of the president, Nicolás Maduro, whose approval ratings are currently in the low thirties. Venezuela has the world's largest crude reserves, and importing oil will provide political fodder for the opposition as another sign of PDVSA's inefficiency.

This charge is not without merit; output has dropped sharply since the deceased former president, Hugo Chávez (1999-2013), came to power. This, coupled with higher production costs and a dramatic drop in international oil prices, is worrying for Venezuela, especially when it has more than US$17bn in debt payments falling due over the course of the next three years. Much of the country's output is not sold at full market price regardless, owing to preferential oil accords with Venezuela's allies.

A very large crude carrier (VLCC), Carabobo, is expected to arrive at Venezuela's José terminal on October 26th. Venezuela has also purchased two cargoes of Russian Urals light crude to be delivered early next month to PDVSA's Isla refinery in Curaçao.

Impact on the forecast

Although the Maduro administration will suffer political fallout from the decision to import crude oil, we have made no changes to our forecasts at this time.