Until recently, Venezuela’s oil production had stabilized at about 1.2 million b/d. However, the country’s recent electricity crisis has paralyzed it for substantial periods of time. In its Oil Market Report for March, the International Energy Agency warned that, as Venezuela’s industry operations were seriously disrupted by the crisis, ongoing losses could present a challenge to the oil market.  Nevertheless, “in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand,” IEA said.

As IEA noted, 1.2 million b/d, Venezuela’s current oil production level, also is the size of the output cuts agreed by the Organization of Petroleum Exporting Countries and some non-OPEC producers. The cuts were implemented in January and compliance by OPEC reached 94% in February, with Saudi Arabia cutting back by about 170,000 b/d more than required. The non-OPEC countries are complying more slowly at a rate of 51%, with Russia reducing its output very gradually.

Due to the cuts, OPEC members are sitting on about 2.8 million b/d of effective spare production capacity (Iran and Venezuela are excluded from the calculation), with Saudi Arabia holding two thirds of it. Much of this spare capacity is composed of crude oil similar in quality to Venezuela’s exports.