(Adds dropped word 'percent' in paragraph 5)
By Marianna Parraga and Alexandra Ulmer
HOUSTON/CARACAS, July 8 (Reuters) - Venezuela's falling crude output and financial woes have left it struggling to maintain a 15-year-old oil assistance program to its closest ally, Cuba.
State-run oil firm PDVSA has slashed its exports to Communist-run Cuba this year, according to the company's internal trade data, seen exclusively by Reuters.
The shift signals an unraveling of the oil diplomacy pioneered by Venezuela's late socialist leader Hugo Chavez and helps explain why Cuba, which generates electricity from fuels, recently ordered some joint ventures and state-owned firms to reduce power usage.
It also comes as Cuba improves its relations with the United States after decades of antagonism and a U.S. economic embargo while Venezuela, mired in triple-digit inflation and acute product shortages, is in a prolonged standoff with Washington.
Cuba, long reliant on Venezuela as its top energy supplier, has received some 53,500 barrels per day (bpd) of crude from PDVSA this year, a 40 percent decline from the first half of 2015, according to the company's data.
When it was flush with cash from oil exports, Venezuela's socialist government won political support in Latin America and the Caribbean by sending oil on advantageous terms to allies.
Cuba, which receives some 4 percent of Venezuela's total oil exports, has been the biggest beneficiary of the program and until this year was spared the fallout from PDVSA's growing cash flow problems, which already undermined oil supplies to Uruguay, Jamaica, Dominican Republic and Curacao.
Venezuela has partially offset the smaller crude shipments to Cuba by boosting exports of refined products such as fuel oil, diesel and liquefied petroleum gas (LPG).
But overall shipments to Cuba, including both crude and products, still declined 19.5 percent to 83,130 bpd in the first half of this year. [Link to graphic on Venezuela's monthly oil exports to Cuba: tmsnrt.rs/29kux9r ]
It is unclear if Cuba is looking to secure new sources of supply amid the shortfalls. The barter arrangement for Venezuelan oil has been a huge boost to Cuba's economy and it would have to pay much more in the open market.
Meanwhile, PDVSA has been scrambling to limit its own purchases of expensive light crude and naphtha needed to dilute its extra heavy Orinoco crude, and is opting to keep more of a medium crude known as Mesa 30 at home to use as a diluent.
Mesa 30 has for long been the main crude received by Cuba. The oil now arriving is heavier, making it harder for Cuban refineries to produce the ideal mix of fuels for its economy, according to a source with the Cuba-Venezuela commission that oversees their treaties.
Venezuela has the world's largest crude reserves though output has declined in recent years because of underinvestment. Given a slump in oil prices and a mounting economic crisis at home, PDVSA is straining to keep up investment and production.
Numerous oil analysts believe the OPEC country's oil output this year will fall to its lowest level since a devastating strike at PDVSA in 2002 and 2003.
PDVSA said this month its sales revenue fell more than 45 percent in 2015. Despite Venezuela's long track record of paying its foreign debts, there are growing concerns among Wall Street investors over whether it will be able to pay PDVSA's and the country's bondholders.
Oil Minister Eulogio Del Pino said there is no significant decline in production, but output is already well off a peak of 3.24 million bpd in 2008. In May, it reported output of 2.37 million bpd, almost 460,000 bpd less than two years ago, according to publicly-available OPEC data.
PDVSA did not respond to requests for comment.
Heavy oil makes up a growing portion of Venezuela's ailing production while the output of lighter crudes that can be used as diluents to turn extra heavy crude into exportable blends is falling sharply.
Production of Mesa 30 crude and other grades used as diluents has fallen by 40,000 bpd so far this year to some 395,000 bpd, according to a source at PDVSA and companies monitoring Venezuela's output.
That has forced it to drastically cut exports of lighter grades and import expensive diluents.
Some of the medium and light foreign crudes PDVSA imports at its Bullenbay terminal in the Caribbean have instead been redirected to Cuba, according to PDVSA's internal data.
In 2015, PDVSA sent 2.6 million barrels of Angola's Girassol and Russia's Urals crudes to Cuba. This year, the firm has opted to send Cuba heavier Venezuelan grades, such as Leona and diluted crude oil (DCO).
Less Venezuelan supply means Cuba will have little or no surplus oil or fuel to export, as it has done in the past.
"Cuba has been able to produce a surplus of gasoline and jet fuel, which it can export to the international market to generate hard currency," said Jorge Pinon, director of the Latin America and Caribbean Program at University of Texas at Austin.
"It would not have that luxury once it has to pay hard cash for the crude oil."
Reporting by Marianna Parraga in Houston and Alexandra Ulmer in Caracas; with additional reporting by Sarah Marsh in Havana; Editing by Terry Wade and Kieran Murray