Venezuela will soon pass the point at which it will be unable to recover lost oil production if U.S. sanctions persist into next year, the federal government said on Wednesday.
The Energy Information Administration said that Venezuela, the sole OPEC member in the Western Hemisphere, has lost about 100,000 barrels a day in production since February due to Trump administration sanctions.
That means that annual production will be hard to make up, and the shortfall will likely place upward pressure on oil prices as new U.S. sanctions on Iranian oil imports kick in.
“If sanctions persist, the country will likely be unable to restart the disrupted portion of production and the 100,000 b/d will become lost capacity,” the EIA said in its Week in Petroleum analysis.
The EIA is forecasting that Venezuela crude oil production will continue to fall through at least the end of 2020, which reflects an expectation of further declines in crude oil production capacity.
The continued production cuts in Venezuela will affect the global supply of oil as the U.S. begins clamping down on Iranian oil imports next week. The EIA likely won’t begin to register the effects of the Iranian sanctions until the week after May 2.
Oil prices nearly broke a six-month high on Tuesday as the markets responded to the State Department’s announcement that it will not be issuing waivers to countries that import oil from Iran.
Nevertheless, the EIA did report Wednesday that the recent upward swing in the average price of gasoline has subsided.
The average price of gasoline had been surging week-over-week for months following OPEC production cuts, Venezuela sanctions, and the refinery switch to summer seasonal fuel blends.
Gasoline prices went up a penny in the last week, which is a modest climb compared to the 8-cent per gallon spike the following week.
The EIA has reported that U.S. gasoline supplies remain robust enough to keep prices low going into the summer driving season.
As for oil, the Trump administration has said Saudi Arabia and the United Arab Emirates are positioned to inject oil into the market to offset supply disruptions due to Iran sanctions.
Saudi Arabia has said it will coordinate with OPEC producers to ensure supplies remain adequate, while ensuring the global market remains balanced.
Oil analysts, however, expect Saudi Arabia to act cautiously before upping production to offset losses from Iran.
“Considering the experience of last year, we expect Saudi Arabia and its allies to cautiously react to customers need rather than preemptively ramp up production,” a UBS research note issued Tuesday read.
Saudis and OPEC producers had upped oil production runs in anticipation of lost Iranian output in the run-up to Trump’s sanctions last year. But before OPEC could respond, Trump issued numerous six-month waivers to large importers of Iranian crude oil, which led to the market becoming oversupplied with oil, sending prices plummeting.
The Saudis, Russia, and OPEC oil countries responded by agreeing to production cuts to force prices higher, and rebalance the market.
UBS says overcompliance with the production cuts by OPEC members has created a buffer to offset a decline in Iranian exports.