Longevity of OPEC Deal Questioned as Venezuela Woes Worsen

PDVSA has fallen months behind on shipments of crude and fuel under oil-for-loan deals with China and Russia.

A CNBC roundup of recent remarks made by respected analysts suggests that the high level of compliance of the Organization of the Petroleum Exporting Countries' (OPEC) cutback agreement may not be as long-lasting as everyone hopes.

The news organization repeated a statement made last week by Herman Wang, OPEC specialist at S&P Global Platts, who pointed out that Algeria, Iraq, and Venezuela are pumping above their allotments and that Saudi Arabia and a few other members are trying to compensate – which causes him to wonder how long the Saudis will bear the burden before they call the whole thing off.

CNBC also revisited a remark made earlier last week by Daniel Yergin, vice chairman at IHS Markit, who suggested the high compliance rate was not due to any magnanimous concerns about the global market but rather because OPEC members are concerned about their own national budgets.

Alex Holburn, oil and gas analyst for Hannam & Partners, said he believes there's a good chance OPEC will maintain its current level of compliance – but he insinuated that future production from Nigeria and Libya, which were exempt from the agreement, could change the dynamics among the cutback participants.

Capping the roundup was John Kilduff, founding partner of Again Capital, who lived up to his reputation for doubting everything about the OPEC agreement by stating that reports of the 90 percent compliance misrepresent the situation because of the Saudis' lop-sided contribution.

If aspects of the OPEC initiative are seen to be increasingly fragile, then they're in good company: as analysts were weighing in with their observations about the dynamics of the cutbacks, internal company documents reviewed by Reuters revealed that PDVSA, Venezuela's state-run oil company, has fallen months behind on shipments of crude and fuel under oil-for-loan deals with China and Russia.

PDVSA at the end of January, was late on nearly 10 million barrels of refined products that it woes Chinese and Russian firms, and shipments have been delayed by as much as 10 months, according to the documents.

PDVSA also failed to make timely deliveries of another 3.2 million barrels of crude shipments to China National Petroleum Corporation.

Francisco Monaldi, fellow in Latin American energy policy at Baker Institute, noted, "PDVSA is taking a legal risk by postponing cargoes to key customers and a financial risk if it also delays deliveries to customers who pay by cash."

A trader who works at a company that regularly buys Venezuelan oil told CNBC, "At this point, everybody is trying to collect pending debts from PDVSA by receiving cargoes, but production is not enough."

According to a PDVSA strategy document, the company produced about 2.5 million barrels per day in 2016, the lowest in 23 years, and this year's production projections are virtually unchanged; CNBC points out that "Because oil accounts for almost all of Venezuela's export revenue, PDVSA's crisis extends to a citizenry suffering through triple-digit inflation and food shortages reminiscent of the waning days of the Soviet Union."

Whether it is the problems of individual OPEC members or OPEC itself, recent events put into question just how much renewed credit the cartel is enjoying on the international front; even OPEC's commitment to its oil cuts may not play out as expected, with Iran and Libya pumping so much crude that these two countries alone are obliterating any benefits.