Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Tuesday, November 26, 2013

Caracas, November 26, 2013

Economics & Finance
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Venezuela oil rut makes dollars even more scarce
Lost revenue is adding to concern over Venezuela’s creditworthiness. The slump in Venezuelan oil prices is depriving the nation of its main source of revenue and threatening bondholders already suffering the worst losses in emerging markets. Average prices of Venezuelan crude exports, responsible for 95% of the nation’s foreign currency earnings, fell to a 16-month low this month and ended last week at U$D 93.98 a barrel. Each U$D 1 dollar decline in a barrel of oil costs Venezuela about U$D 700 million per year. Venezuela’s debt securities have declined 7% this month as borrowing costs touched a 22-month high of 14.56%, according to JPMorgan Chase & Co. “With this reduction in oil income, the government won’t be able to maintain spending levels,” says Barclays Plc analyst Alejandro Grisanti. The difference between oil prices this year and last year has so far reduced income by $3 billion, Grisanti said.  “Oil prices in the low $90s would leave Venezuela with a current account deficit,” says Ben Ramsey, an economist at JPMorgan Chase & Co. The New York-based bank cut its recommendation on Venezuela bonds to neutral from overweight in a report dated Nov. 12. The consequences of lower oil prices could include devaluation, spending cuts and tighter monetary policy, “raising risks of a social and political backlash,” according to Ramsey. The extra compensation that investors demand to own Venezuelan bonds instead of U.S. Treasuries has risen to 11.52 percentage points this month, the highest in emerging markets, according to JPMorgan. “Venezuela’s oil basket is declining primarily due to declines in heavy oil prices,” says Ruth Krivoy, an oil analyst from Sintesis Financiera, the consultant firm for GlobalSource Partners. TransCanada Corp.’s proposed Keystone XL pipeline may displace Venezuelan crude, pushing prices even lower, because the project would allow U.S. refineries to source more Canadian oil, says Roger Tissot, a consultant in British Columbia. NuStar Energy LP on Nov. 8 canceled a long-term agreement with PDVSA for 30,000 barrels a day of crude. “If the Canadians go ahead with the Keystone Pipeline to export heavy oil from Canada to the U.S. Gulf Coast, that would cut off that little window of opportunity that is left for Venezuela,” Tissot says. (Bloomberg:

Maduro calls inflation "induced and criminal", pressures Central Bank, National Statistics Institute
President Nicolás Maduro says inflation this year was "induced and criminal, the product of economic warfare that wanted to lead our nation into chaos". He brought heavy pressure to bear on technocrats at Venezuela's Central Bank and National Statistics Institute, saying "Do technocrats at the Central Bank and the INE realize what is happening beyond technocracy and technology?" and asked them to "dig deep and discover the incidents of the economic offensive". According to economist José Guerra, a former Research Director at the Central Bank, Maduro is now aiming at indicators which reflect inflation and scarcity. Guerra says "we are facing a sort of blackmail seeking to bring inflation down with a sledgehammer, by decree, and I hope specialists to not knuckle under to this, because they will destroy the credibility of statistics". More in Spanish: (El Universal:; and Infolatam)

Central Bank says Venezuela experienced 1.4% GDP growth January-September 2013, adding that this adds up to growth over 12 consecutive quarters. The Bank reports financial institutions led growth, at 19.5%. More in Spanish: (Banco Central de Venezuela:

Operating reserves down 83% from 2009
Central Bank reports show that at the end of 2009, operating reserves were U$D 15.9 billion, but this September the same reserves were down to U$D 2.7 billion, a 83% drop. (El Universal, 11-25-2013;

Compulsory price cuts do little to deter inflation
President Nicolás Maduro claims that as a result of his ordering mandatory price cuts November inflation should be at least -5%. However, the ECOANALÍTICA economic think tank says such government action may not have a significant effect since prices adjusted cover only 1.2% of the Venezuelan basic consumption basket. ECOANALÍTICA adds that shortages could shoot up as "retailers may have to reduce stocks to minimize losses with price adjustments below replacement cost." (El Universal, 11-25-2013;;

Venezuela stock market up 402%
Venezuela’s stock market recovered during the week ending November 22, with the Caracas Stock Index gaining 5.7% to 2,365,205. Volume was high, as prices bounced back from the sharp drop of the previous week. The Venezuela Stock Market is now up 401.70% for the year to date in Bolivar terms, though only 242.44% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world. (Latin American Herald Tribune, 11-25-2013;

Oil & Energy
Nervous oil traders fixated on Venezuela risk
Within the oil industry, nervous traders are increasingly fixating on a fresh source of supply risk – Venezuela, where political instability is threatening to hit production at PDVSA, the state oil company, which is the country’s main source of export revenue and the regime’s cash cow. In a report last week which was otherwise bullish on supplies, analysts at Citigroup called Venezuela “probably the biggest bull risk to the oil market in 2014 outside of the MENA [Middle East and north Africa] region”. “The current regime is looking increasingly unstable, with rampant inflation, shortages of food and other basics. In the event of a coup the country’s production could collapse as it did back in 2002 [when PDVSA workers went on strike],” the bank’s analysts added. Venezuela’s growing instability was also widely discussed at an oil industry conference in Mexico last week, according to participants. Concern centers around two scenarios. One fear is that municipal elections in December could be a trigger for civil unrest, encouraging elements within the army that oppose the regime to step in to secure the streets. Any coup could lead Chavistas to orchestrate a shutdown of production at PDVSA. The second concern is more prosaic – cash. Since 2007 China has committed to lend Venezuela more than U$D 40bn, which has helped keep the economy afloat. But traders say PDVSA is struggling to supply the more than 300,000 barrels a day of exports required under the agreement, while still generating export revenues by selling elsewhere. “It is a matter of time before Venezuela defaults on its loans to China and without more cash the government will struggle to pay wages and there will be chaos,” says one senior trader, who says the market should be factoring in a significant reduction in Venezuelan output next year. (The Financial Times;

PDVSA's oil exports to CITGO decline, U.S. oil firms buy more
State-owned oil company PDVSA is sending less of its crude to its U.S. unit CITGO and some of the slack is being picked up by other U.S. oil firms such as Valero Energy and CHEVRON, according to the Energy Information Administration. PDVSA used to send some intermediate products for CITGO's 750,000 barrel per day (bpd) refining network but it has not shipped its unit any feedstock’s this year, latest EIA data through August shows. The decline stems in part from a series problem PDVSA has had with its domestic refinery network since 2012 and assets sales CITGO made starting in 2005 of two East Coast asphalt plants and a partnership at a refinery in Texas. (Reuters, 11-25-2013;; El Universal;

Orinoco Oil Belt output at 80% of target
Current production at the OOB, including traditional areas that were seized by the Venezuelan State in 2007 and new developments, is 1.21 million BPD. PDVSA had projected a 1.5 million BPD output by year end 2013, which means only 80% of the volumetric target of average production has been attained. (El Universal, 11-25-2013;

ROSNEFT looks to boost Venezuelan output
Russia's top crude producer ROSNEFT expects oil output at its projects in Venezuela, where production has been stagnant in recent years, to reach 1 million BPD by 2019-2020. Venezuela, whose economy is heavily dependent on oil production, is hoping that new projects in the Orinoco crude belt will help increase output. ROSNEFT President Igor Sechin, a long-standing ally of Russian President Vladimir Putin, says oil production at Rosneft's joint ventures in the Orinoco belt will reach 280,000 bpd in 2016 and rise further in 2017. "Such dynamics of assets and production development would allow us to reach the level of at least 1 million bpd in 2019-2020," Sechin is quoted as saying at a conference. (Upstream;

International Trade
Price checks at Puerto Cabello have increased, seasonal cargo lower than usual, 50% drop at La Guaira
Price checks on merchandise arriving at Puerto Cabello have become significantly stricter over the past two weeks. A source at the port says officials have "become more inquisitive".  The same source says there is less incoming import volume as imports no longer depend on business needs but on FOREX availability. Cipriana Ramos, President of FEDECÁMARAS in Vargas State (La Guaira) says import volume there dropped 50% from November 2012, and says "The dollar scarcity will doubtless result in deeper overall scarcity". More in Spanish: (El Nacional;

50% drop reported in dairy product imports from Argentina
Argentina's Ministry for Agriculture, Cattle and Fisheries reports there has been a 50% drop in dairy product exports to Venezuela since last month, from 5.604 to  2.794 tons, down from U$D 29.1 to 14.6 million. More in Spanish: (El Mundo,

Overbilling on exports from Ecuador to Venezuela under investigation
Ecuadorean authorities have detected overbilling in chemical product exports to Venezuela. Overbilling was found in 4 chemical product exporting companies owned by Venezuelans, which operated within the Regional SUCRE payment system, for a total of U$D 17.7 million. More in Spanish: (El Universal,

Opposition marches in Venezuela ahead of local elections
Tens of thousands of opposition supporters marched in Venezuela on Saturday to pressure President Nicolas Maduro's government before Dec. 8 local elections after their leader denounced the pre-dawn arrest of one of his aides. The vote for control of 335 municipalities will be the first big test of Maduro's political strength after he narrowly defeated his opposition rival, Henrique Capriles, in a presidential election in April. While it will be nearly impossible for the opposition to win the majority of Venezuela's 335 municipalities, many of them far-flung villages dependent on government patronage, it hopes to win the combined majority of votes nationwide with a strong showing in large metropolitan areas such as Caracas, where it currently holds just one of the five electoral districts. (Fox News: Reuters, 11-23-2013;;; Latin American Herald Tribune,; The Washington Post,; Fox News,

OAS Secretary General calls for a dialogue in Venezuela
OAS Secretary General José Miguel Insulza says he is following "events taking place in Venezuela with concern", adding that "the spirit of confrontation that is prevalent within Venezuelan society benefits no one". He added that "only positive dialogue can bring positions closer", saying "this is what Venezuelans need". More in Spanish: (El Universal;

Democratic Unity Conference (MUD) warns the Elections Board will not present total vote
Vicente Bello, a director of the opposition Democratic Unity Conference (MUD) warns that the National Elections Board will not announce total results for municipal elections scheduled for December 8th. Bello says "plans are that they will not give national total results", beyond individual municipal results. More in Spanish: (El Nacional;

The Department of State has issued a Travel Warning to inform U.S. citizens about the security situation in Venezuela, saying violent crime here is pervasive, both in the capital, Caracas, and in the interior.  According to the non-governmental organization Venezuelan Violence Observatory (VVO), there were 21,692 homicides in Venezuela in 2012, amounting to a rate of 73 homicides per 100,000 inhabitants, among the highest in the world.  In Caracas, the homicide rate is even higher at 122 homicides per 100,000 inhabitants. Kidnappings are also a serious concern throughout the country.  In 2012, 583 kidnappings were reported to the authorities.  It is estimated that roughly 80% of kidnappings go unreported; meaning the actual number of kidnappings in 2012 is likely much higher.  Common criminals are increasingly involved in kidnappings, either dealing with victims’ families directly or selling the victims to terrorist groups.  In addition, there is cross-border violence, kidnappings, drug trafficking, and smuggling along Venezuela’s western border. (American Thinker;

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

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