Venezuela Helped Build OPEC. Now It May Help Break It Apart

Venezuela helped create OPEC. More than six decades later, it is considering walking away, and Washington appears perfectly happy to hold open the door.

Caracas is weighing whether to leave the Organization of the Petroleum Exporting Countries, Bloomberg reported Friday, citing people familiar with discussions that have included U.S. officials. No final decision has been made.

Venezuela produced about 1.117 million barrels per day (bpd) in July according to OPEC’s secondary sources, and is currently exempt from OPEC production quotas after years of sanctions, underinvestment and economic turmoil gutted output.

But Venezuela was one of OPEC’s five founding members in 1960 and played a central role in assembling the organization, and its departure would come just months after the United Arab Emirates quit following years of frustration over production restrictions.

Iraq may be next in line. Baghdad has warned it could reconsider membership if an ongoing capacity review does not produce a higher production quota.

Together, the UAE, Venezuela, and Iraq represent more than 7 million bpd of production capacity, roughly 32% of capacity held by OPEC’s members, according to OPEC’s latest Monthly Oil Market Report. Just Venezuela and the UAE alone account for 4.9 million bpd.

Interestingly, U.S. and Venezuelan officials are currently discussing greater American participation in the country’s oil fields, including a possible 100-year lease on several assets. Chevron has already expanded its position, while SLB and Hunt Oil recently reached agreements with PDVSA.

Venezuela holds an estimated 303 billion barrels of proven oil reserves, but rebuilding production will take years. Current deals are expected to add only incremental barrels in the near term.

OPEC is already contending with growing U.S., Brazilian and Guyanese supply, diminished Russian influence and a Gulf war that has left some members unable to produce anywhere near capacity.

By Julianne Geiger for Oilprice.com

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