LOW OIL PRODUCTION IN VENEZUELA

Venezuela registered its biggest monthly oil-production decline in a

decade in May, according to data released Monday by the Organization
of the Petroleum Exporting Countries, signaling further trouble for a
country already enduring severe economic hardship.

The decline of 120,000 barrels a day, to 2.37 million barrels a day,

underscores the inability of state energy company Petrleos de
Venezuela SA to maintain oil-industry investments, as the regions
largest petroleum exporter suffers from a debilitating cash crunch,
widespread food shortages and civil unrest.

In recent months, major oil services companies, including Halliburton

Co. and Schlumberger Ltd. , said they were cutting back on operations
in Venezuela as the country struggles to pay multibillion-dollar debts
with partners.

This is very surprising, said Francisco Monaldi, a Latin American

energy policy fellow at Rice University in Houston, who closely tracks
Venezuelas oil industry. If you want to point to the biggest problem, it
is cash flow, which for PDVSA now looks worse than we had imagined.

Venezuela, which relies on oil for nearly all of its income, is facing
severe dollar shortages due to low oil prices as well as more than a
decade of profligate spending under the ruling socialist government,
which used oil-sector money to fund social programs. The countrys oil
output is far from the 6 million barrels a day that its officials have long
targeted.

Monthly oil production has fallen this much only once since 2003, when
the countrys oil industry came to a standstill during a devastating strike
led by PDVSA workers seeking the ouster of then-President Hugo
Chvez.

The last time was in 2006, said Gary Ross, head of global oil at the
consulting firm PIRA Energy Group, who added that the drop-off may
give leverage to oil-field services companies that are now in payment
negotiations with Venezuela. Theres an urgency there now that wasnt
there before this happened, because of the lost production, Mr. Ross
said.
Venezuela, which boasts the worlds largest crude reserves, needs
significant investment in its Orinoco basin, a massive oil patch in the
countrys east, as part of its long-term plans to double oil output. The
regions tar-like, heavy crude is costly to process and requires PDVSA to
import light crude oil as a blending agent to extract the Orinoco crude
and make it transportable.

While the break-even price for Venezuelan oil is around $21 a barrel,
Orinoco crude requires a price above $28 a barrel for PDVSA and its
partners to make a profit on it, according to Eurasia Group analyst Risa
Grais-Targow.

Venezuelan oil fetched around $25 a barrel during the first three months
of 2016. While the price has risen to nearly $40 a barrel over the last
month, the production decline has eaten into PDVSAs revenues.
 CRISIS-STRICKEN VENEZUELA HAS ANOTHER BIG
PROBLEM: ITS OIL PRODUCTION HAS PLUNGED TO
ALARMINGLY-LOW LEVELS
At a time when most OPEC countries are ramping up oil output,
Venezuela produced just 2.15 million barrels of crude oil per day in
June, according to S&P Global Platts estimates. That's the weakest pace
since February 2003, Platts said.

Venezuela's shrinking oil production is a reflection of the country's grim

financial situation, which has caused rolling blackouts that have even
left oil facilities in the dark. And because of how critical oil is to
Venezuela's economy -- oil accounts for 96% of exports -- the declines
threaten to exacerbate the already-dire situation, where a severe food
shortage has led to waves of looting.

"It's coming together now in a perfect storm," said Thomas O'Donnell, a

senior energy analyst at Wikistrat.

An internal report by PDVSA, Venezuela's state-owned and scandal-

plagued oil giant, also showed a "steep fall" in oil output, Platts said.
 VENEZUELA IS RUNNING OUT OF EVERYTHING

Failure to invest: Analysts have long warned that Venezuela wasn't

investing enough money into its oil industry. That's a problem because
oilfields naturally deteriorate over time, and so do the facilities that
service the fields. These issues were masked by high prices. But with
crude oil prices down by 50% from two years ago the issues are being
amplified.

Power outages: Platts said Venezuela's oil sector is experiencing power

rationing, which is "exacerbating" recent production declines. Venezuela
has long suffered from power problems and the government recently
instituted rolling blackouts. The country blames record-low water levels
at a key dam, though opposition figures point to chronic corruption and
mismanagement.

Sky-high costs: Venezuela is grappling with incredible inflation north of

500% as a result of the country's plummeting currency. That means oil
companies and suppliers are left with higher costs than they can deal
with right now. It's impacting other companies as well.
Companies find it hard to operate: Over the weekend, Kleenex
maker Kimberly-Clark (KMB) suspended its business operations in
Venezuela, citing the country's "rapidly escalating inflation" and
"continued deterioration of economic and business conditions." Oreo-
maker Mondelez and Pepsi also have said they will stop accounting for
Venezuela sales. Things have gotten so bad that this week Venezuela
admitted Citigroup plans to shut the country's government accounts,
including the ones at its central bank, within the next 30 days. President
Nicolas Maduro denounced the decision, calling it a "financial blockade."

Cash shortages: Venezuela has one of the world's largest proven

reserves of oil, but the type of crude found there is very heavy and hard
to refine. So, Venezuela needs to blend its crude with lighter crude from
countries like Nigeria and the U.S. That expensive task has been made
more difficult by payment issues caused by the financial problems.
Payment issues have also led to a shortage in Venezuela on everything
from bread to toilet paper.

Unfortunately for Venezuelans, the declines in production mean that

crucial oil revenues may shrink further, despite the recent rise in prices
to around $45 a barrel.

Despite the obvious need for Venezuela to pump more oil, Platts sees
"little hope of a recovery" any time soon.

Venezuela: Money supply and inflation

 CASTRO: VENEZUELAS OIL SUPPLY CUTS
STRESSING CUBA
Cuba's economy is being "stressed" by a decline in preferential oil and
refined products supply from Venezuela, president Raul Castro told the
island's parliament last week.

In a 8 July speech Castro said the island's economy was troubled by a

fall in export revenues and the contraction of fuel supplies from
Venezuela "despite the firm will of president Nicolas Maduro and his
government to fulfill these supplies."

"Obviously this has caused additional stress on the Cuban economy,"

Castro told parliament.

In the past the island has imported around 80,000 b/d of crude and
products from Venezuela on preferential terms. This supplements the
50,000 b/d of liquids and 20,000 b/d equivalent of gas Cuba produces
from onshore and shallow water reservoirs.

Castro did not indicate the extent supply cutbacks from Venezuela. An
official of Cuba's state-run oil company Cupet said on 7 July that there
was no reduction in imports from Venezuela, but another official told
Argus there appears there is a reduction, "but we cannot say to what
extent."

Industry sources say Venezuelan crude and product exports to Cuba

since January are about 50pc less than a year ago.

The economy expanded by 1pc in the first half of this year half the
rate the government had projected, Castro said.

Castro's speech to parliament came the day after the government

announced an indefinite 50pc reduction in power and fuel use by state
agencies. The cutbacks are intended "to avoid blackouts and problems
for basic services," the island's vice president for the economy Marino
Murillo said 6 July. The reductions will be in place "until there is an
improvement in the economic situation," according to other officials.