Venezuela may have to start shutting down some oil wells soon because it is running out of space to store oil following last week’s seizure of an oil tanker and U.S. plans to block other sanctioned vessels.
The country’s main storage tanks and oil tankers docked at terminals are filling quickly and could reach maximum capacity in about 10 days, according to people close to the matter who preferred not to be identified as the information is confidential. If this happens, state-owned Petróleos de Venezuela SA (PDVSA), which produces close to 1 million barrels per day, may be forced to halt production in some wells.
Chevron continues to produce normally in its partnerships with PDVSA and is complying with all current laws, the company said on Wednesday. Although it uses unsanctioned tankers to export oil to the US Gulf, it is not yet clear what the impacts will be if PDVSA has to shut down wells.
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This increased pressure reflects the intensification of the Trump administration’s campaign to cut oil revenue from President Nicolás Maduro’s regime. On Tuesday, the US president announced a “total blockade” of all sanctioned oil tankers entering and leaving Venezuela, in addition to classifying the regime as a foreign terrorist organization. Even without details or official guidelines so far, the movement of ships has practically stopped, because the market avoids the risk of seizure, according to sources.
Chevron said it is in compliance with U.S. government sanctions and that questions about security in Venezuela should be directed to U.S. authorities.
Half of Chevron’s production in Venezuela, around 200,000 barrels per day, is delivered to PDVSA according to the contract.
Chevron operates in the country under a US Treasury license that exempts it from oil sanctions, but under strict conditions.
PDVSA’s oil exports continue normally, with insurance, technical support and operational guarantees, according to the company.
New restrictions on transporting Venezuelan crude and importing the diluent needed to produce and transport PDVSA’s extra-heavy crude could cause tanks to fill too quickly, explained Schreiner Parker, partner and head of emerging markets at research firm Rystad Energy. When this happens, production can drop quickly.
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In Trump’s first term, “maximum pressure” sanctions caused Venezuela’s production to plummet to less than 500,000 barrels per day, Parker said. PDVSA was able to recoup some of this by switching its oil to a type of diluent from Iran. “But that is not an option now, with the US patrolling the Caribbean,” he said.
Accumulation of tankers
At least three supertankers, which together can carry 6 million barrels of oil, have already been loaded but remain stuck in Venezuelan waters, according to people, satellite images and a Bloomberg report.
Venezuela relies heavily on a “ghost” fleet of ships that turn off or fake their signals to hide where they are and sail undetected. The three trapped ships are loaded with Venezuelan heavy oil valued at around $300 million, according to Bloomberg.
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The ghost ships Crag and Galaxy 3, which use false names, were loaded last week and are still in Venezuelan waters. Another supertanker, the Kelly, which turned off its transponder a week ago, finished charging in the last few days. A fourth ship, called Romana, is carrying 1.9 million barrels of Merey 16 crude, Venezuela’s main oil.
Chevron was able to load its cargo even after a recent cyber attack on PDVSA, which disrupted administrative work at ports but did not affect oil production or transportation.
Venezuela accounts for less than 1% of global oil production, which limits the impact of this disruption on prices.
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