The price of Venezuelan oil tumbled again on Friday, falling for the third straight week to a price of $91.95 per barrel, the lowest recorded since June 2012. The $0.27 drop brings the August average price per barrel down to $92.12, and the average for the year so far now sits at $96.57. The price of Venezuelan oil has seen a dramatic decline, falling more than $10 from its 2012 average of $103.42 per barrel.
The Ministry of Petroleum and Mining attributed the latest slide to decreased global demand coupled with ample global supplies, a surprising set of circumstances given the tensions in both Eastern Europe and the Middle East. Venezuela has seen important shifts in its crude exports in recent years. The United States is currently the largest importer of Venezuelan oil (almost 800,000 barrels per day in 2013), but its totals have dropped almost 50% in the last 10 years. The rise of domestic light crude oil in the United States has lessened demand for Venezuela's heavy crude, for which there is limited refinery capacity. Moreover, because of Venezuela's poor refinery capacity, U.S. exports of gasoline and other products to Venezuela have increased significantly.
Deals signed with China earlier this summer aim to push exports to that country from the current 600,000 per day to 1 million per day by 2016. Increased exports to China, however, present its own problem for the Venezuelan government. Much of the oil shipped to the Asian giant is used to pay off the billions of dollars in loans it has provided to Venezuela, meaning that the exports do not bring cash into Venezuelan coffers.
Strapped for cash, the Venezuelan government has considered a number of heretofore unthinkable policy changes, including raising gas prices (currently the lowest in the world), combining its exchange rate regime into a single rate (a step many of called a stealth devaluation), increasing prices in other areas, such as public transportation and on certain food products, and selling Citgo, the U.S. subsidiary of state firm Petróleos de Venezuela (Pdvsa) and a key asset.
The battered Venezuelan economy will limp into fall with a struggling industrial sector (particularly the auto industry) and with Central Bank reserves down by over 10% from last year. The average per barrel price is still well above 2010's average price of $72.43, and there remains a significant difference between current prices and the $60 per barrel threshold used to formulate the country's budget. Sitting on almost 300 billion barrels of proven crude reserves, Venezuela has plenty of oil to extract. Whether it will be able to profit from that oil, however, is less clear.