More oil industry changes are still needed before Venezuela, which is producing less than 800,000 bbl/d, will be able to break the seemingly mythical 1 MMbbl/d barrier, according to the OPEC-member country’s top economic consultancy.

That production barrier just happens to be the same target the Venezuelan government of President Nicolas Maduro was chasing over the near term until recently.

Luis Vicente Leon, president of Venezuela’s top polling company Datanalisis said Aug. 2 in a post on X, the social media platform formerly known as Twitter, that production progress made by Chevron Corp. hasn't translated into greater gains in Venezuela’s oil production—since the U.S. company can't compensate for other production declines and losses caused by the latest corruption scandal that has rocked Venezuela’s state-owned Petróleos de Venezuela (PDVSA).

“Without Chevron, the country’s situation would be dramatic,” Leon said. “In fact, the relative exchange rate stability that we have seen in recent months is due to Chevron’s supply of foreign currency into the market and expectations of stabilizing [economic] macro figures in the coming months are [also tied to Chevron].”

But, increased activities necessary to push production above the 1 MMbbl/d barrier will depend in large part on whether the U.S. further relaxes sanctions. Such a move could lead to more licenses such as the one granted to Chevron, consultancy Ecoanalitica said last week in a research report.

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However, the recent barring of opposition presidential hopeful Maria Corina Machado from holding office is a blow to Washington’s ongoing efforts to achieve “free and fair” Venezuelan elections in 2024. This could possibly work against the oil industry in any number of ways, analysts told Hart Energy.

“But mainly, large investments are needed to improve the deteriorated state of the Venezuelan oil industry across its entire production chain,” Ecoanalitica said.

The Caracas-based consultancy added: “For this, it will be essential to generate trust and credibility and have a sufficiently attractive legal framework in order for private and foreign investors to bet again on the Venezuelan oil sector.”

Venezuela is home to the world’s largest oil reserves and seventh-largest gas reserves, according to BP. The country is relatively close to the U.S. Gulf Coast compared to other major reserve holders.

Venezuela produced an average 767,000 bbl/d in June 2023, according to OPEC data from secondary sources, up consecutively for the past two months. Venezuela’s production is now on track to average around 734,000 bbl/d  for the year, according to OPEC data compiled by Hart Energy. If the target is achieved, it will mark the fourth consecutive year of Venezuelan production growth.

Despite the growth seen in Venezuela’s 2023 oil production, the oil industry still confronts structural problems. And without necessary investments and regulatory improvements its growth will continue to have a ceiling, Ecoanalitica said.

Venezuela’s production is still on track to decline—since 1999, by about 2.07 MMbbl/d. And Ecoanalitica expects Venezuelan oil production to close the year averaging about 700,000 bbl/d.

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Investors interested in Venezuela’s oil sector continue to confront headwinds from U.S. sanctions, economic and political uncertainties and the country’s overall inability to compete with other oil industries in the Latin America and Caribbean region, according to the analysts.

And the Venezuelan government’s continued high take in oil projects remains a major deterrent, they say.

Inflation remains rampant and is expected to end 2023 at 274.7%, according to Ecoanalitica estimates. Elections in 2024 mean most energy companies in Venezuela will take to slowing investments amid the political uncertainties, analysts said.

RELATED: Barred Machado Eyes Venezuela Energy Sector Privatization, Debt Restructuring

Chevron effect on oil production and exports

Washington’s decision at the end of 2022 to allow Chevron to take a more hands on approach to boosting its production and exports in Venezuela has helped the Caribbean country increase both during the first half of the year.

As a result, the outlook for Venezuela’s oil industry has been perceived as potentially more encouraging.

The so-called “efecto Chevron” or Chevron effect is arguably one of the few positive signs the Venezuelan oil sector has received since U.S. sanctions on the oil industry were imposed in 2019.

Chevron has the green light to try to return its production to around 200,000 bbl/d, or the capacity its joint ventures were producing at or near before the recent oil sector meltdown. Despite the optimism around Chevron’s influence, analysts stress that the Chevron effect is nearly impossible to replicate since similar production and export allowances haven’t been extended to other companies.

Some analysts argue the license granted to Chevron by the U.S. Office of Foreign Assets Control or OFAC, only allows the company to return production to earlier levels. Higher production levels would require significant investments, analysts said.

Chevron produced an estimated 125,000 bbl/d in the second quarter of 2023—about 16% of Venezuela’s total production, according to Ecoanalitica. But the company has already revised downward its Venezuelan production estimates.

Chevron now expects its Venezuelan production to only reach an average 175,000 bbl/d due to difficulties related to production reactivation at its fields. The company has also faced shipping hindrances in Lake Maracaibo due to the poor state of the lake’s navigation channels.

Fortunately, Venezuelan oil exports have grown along with oil production. Oil exports averaged 638,000 bbl/d in second-quarter 2023, up from an average 592,000 bbl/d in the first quarter of 2023; and 549,000 bbl/d in the second quarter of 2022, according to Ecoanalitica.

Chevron exported an average 140,000 bbl/d in second-quarter 2023, representing 22% of Venezuela’s total oil exports, according to Ecoanalitica data.

But analysts argue that the Chevron effect will only have a significant impact initially. Longer term, the company’s influence will be negated if PDVSA is unable to address its own production declines.

U.S. sanctions and the non-recognition of Maduro’s government by the U.S. are major headwinds to increased investments in Venezuela, Leon said on X. “And until this issue is addressed, the possibilities of obtaining fresh money to attend to infrastructure and the private sector remain restricted.”