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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: http://www.bloomberg.com/news/2013-11-25/venezuela-oil-rut-makes-dollars-even-more-scarce.html)
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: http://www.eluniversal.com/economia/131126/el-gobierno-incrementa-la-presion-sobre-el-banco-central; 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: http://www.bcv.org.ve/c4/notasprensa.asp?Codigo=11033&Operacion=2&Sec=False)
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; http://www.eluniversal.com/economia/131125/venezuelas-operating-reserves-down-83-since-2009)
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; http://www.eluniversal.com/economia/131125/compelling-cuts-in-prices-do-little-to-deter-inflation;
http://www.eluniversal.com/economia/131123/excess-of-liquidity-threatens-to-speed-up-inflation-in-venezuela)
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; http://www.laht.com/article.asp?ArticleId=1224696&CategoryId=10717)
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; http://www.ft.com/cms/s/0/44955dfc-55d2-11e3-b6e7-00144feabdc0.html#axzz2lmmBDIRv)
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; http://www.reuters.com/article/2013/11/25/oil-venezuela-us-idUSL2N0J721420131125; El Universal; http://www.eluniversal.com/economia/131125/buy-of-us-oil-byproducts-up-156)
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; http://www.eluniversal.com/economia/131125/oil-output-at-the-orinoco-oil-belt-at-80-of-the-target)
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; http://www.upstreamonline.com/live/article1344654.ece)
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; http://www.el-nacional.com/economia/acentuaron-revisiones-precios-Puerto-Cabello_0_307169507.html)
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$D 29.1 to 14.6 million. More in Spanish: (El
Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/cae-50--importacion-de-productos-lacteos-de-argent.aspx#ixzz2lkO6Nxlo)
Overbilling on exports from Ecuador
to Venezuela under investigation
Ecuadorean authorities have detected overbilling in chemical product
exports to Venezuela. Overbilling was found in 4 chemical product exporting
companies owned by Venezuelans, which operated within the Regional SUCRE
payment system, for a total of U$D 17.7 million. More in Spanish: (El
Universal, http://www.eluniversal.com/economia/131126/investigan-recargo-en-facturas-de-exportaciones-a-venezuela)
Politics
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: http://latino.foxnews.com/latino/politics/2013/11/24/maduro-opponents-take-to-streets-in-venezuela-in-nationwide-protest/:
Reuters, 11-23-2013; http://www.reuters.com/article/2013/11/23/venezuela-opposition-idUSL2N0J80GE20131123;
http://www.reuters.com/article/2013/11/23/venezuela-opposition-idUSL2N0J80C620131123;
Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=1218658&CategoryId=10717;
The Washington Post, http://www.washingtonpost.com/world/the_americas/venezuelas-opposition-stages-nationwide-protests/2013/11/23/585d1a52-5472-11e3-9ee6-2580086d8254_story.html;
Fox News, http://www.foxnews.com/world/2013/11/23/venezuelan-opposition-seeks-to-rebuild-momentum-in-nationwide-day-protests/)
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; http://www.eluniversal.com/nacional-y-politica/131126/secretario-general-de-la-oea-llama-al-dialogo-en-venezuela)
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;
http://www.el-nacional.com/)
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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