January 03, 2018

Oil & Energy

Venezuela oil basket ends year at highest since 2015

The price Venezuela receives for its mix of medium and heavy oil finished 2017 at its highest level since June of 2015. According to figures released by the Ministry of Petroleum and Mining, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending December 29 rose to US$ 57.85, up US$ 1.28 from the previous week's US$ 56.57. WTI in New York averaged US$ 59.26 -- up S$ 1.59 -- for the week, while Brent crude traded in London averaged US$ 66.907 -- up US$ 2.09 from the previous week. According to Venezuelan government figures, the average price in 2017 for Venezuela's mix of heavy and medium crude is US$ 46.66. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2448408&CategoryId=10717)

 

Commodities

Crisis-wracked Venezuela turns for hope to broken factories

Production this year at state-run SIDOR, Venezuela's largest steelmaker, is expected to reach barely 20% of its peak production, set a decade ago, he said. At its height in 2007, under private ownership, the factory put out more than 4 million tons. Still, it is eking out more than the year before despite Venezuela's lack of hard currency and U.S. sanctions that officials say are starving factories of the resources they need. In 2008 the late President Hugo Chavez began putting the factories, then owned by conglomerates from Japan and Argentina, under the state's control. Output steadily eroded even before the oil price crash. Today, a massive dump truck that loads ore onto trains to be sent to the foundries — a lynchpin in the cycle — runs on a tire so badly worn that strips of rubber tread are missing. Twisted piles of train cars that used to transport raw iron ore litter a hillside. They derailed when an engineer was travelling too fast on rails left unmaintained. At SIDOR, only two of the four smelting ovens that make steel bars are functioning, and workers who used to operate around the clock put in just one shift a day now, officials said. Workers at the state-run factories quietly complain that they once proudly filled the ranks of Venezuela's middle class, taking their families out to eat and going on vacations. Now, all their money goes to buying food. (Fox News: http://www.foxnews.com/world/2018/01/03/crisis-wracked-venezuela-turns-for-hope-to-broken-factories.html)

 

Economy & Finance

Maduro raises minimum wage 40%, stoking world's fastest inflation

President Nicolas Maduro announced a 40% increase to the minimum wage as of January, a move that will foment what many economists already consider hyperinflation in the oil-rich but crisis-stricken nation. In his televised year-end address, leftist Maduro said the new wage level would protect workers against what he calls Washington’s “economic war” to sabotage socialism. Most economists say the government is in fact fomenting a vicious cycle in a country already wrestling with the world’s fastest inflation. To counter those price increases, Maduro has been raising the minimum wage, but quickening inflation coupled with a depreciating bolivar currency has plunged millions into poverty. Venezuelans will now earn some 797,510 bolivars a month, factoring in food tickets, or just over $7 on the widely used black market index. Millions will still be unable to afford three meals a day, while the increase is likely to stoke inflation further. Prices went up 1,369% between January and November, according to figures released earlier this month by the opposition-led Congress, which estimated the 2017 rate would top 2,000%. The Venezuelan government no longer publishes inflation data on a regular basis. Carlos Larrazábal, President of Venezuela’s main business federation (FEDECÁMARAS) has called the move a mistake that does not go to the root of the problem, He also says it violates the rules of the International Labor Organization. (Reuters, https://www.reuters.com/article/us-venezuela-economy/venezuela-raises-minimum-wage-40-percent-stoking-worlds-fastest-inflation-idUSKBN1EP0K3; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2448401&CategoryId=10718; and more in Spanish: Noticiero Venevisión, http://www.noticierovenevision.net/noticias/economia/fedecamaras-asegura-que-el-aumento-del-salario-es-un-error; El Nacional, http://www.el-nacional.com/noticias/economia/fedecamaras-aumento-del-salario-viola-los-acuerdos-con-oit_217411)

 

Venezuela misses another debt payment, raising stakes for bondholders

Venezuela has defaulted on another debt obligation, according to S&P Global Ratings, intensifying investor fears about the country’s ability to make more than US$ 9 billion in bond payments due in 2018. The ratings firm said Tuesday that Venezuela failed to make US$ 35 million in coupon payments for its bonds due in 2018 within a 30-day grace period. The government and the state-owned oil company are now behind on $1.28 billion in payments, according to investment firm Caracas Capital. (The Wall Street Journal: https://www.wsj.com/articles/venezuela-misses-another-debt-payment-raising-stakes-for-bondholders-1514933217)

 

Wall Street's Venezuela bet rests in hands of these seven people

As 2018 gets underway with the government and its state oil company behind on more than US$ 1.5 billion of payments, creditors are wondering what’s in store for them as an additional US$ 9 billion comes due over the next 12 months. Will the nation continue to muddle through, eventually paying investors even if not quite making the due dates? Or has the country reached the point where it just doesn’t make sense to continue servicing more than US$ 60 billion in overseas debt as the population suffers from a severely contracting economy, surging inflation and a sharp deterioration in quality-of-life measures? Venezuela’s one-year default probability has climbed to a world-leading 93.4%, according to a Bloomberg model that weighs a nation’s external debt load, economic growth forecast and political risks. With so many variables at play in Maduro’s calculations for the next year, it’s worth looking at seven of the most important people from Caracas to Beijing who could determine the outcome for money managers: 1) The Money Man. Simon Zerpa, Venezuela’s finance minister and Petroleos de Venezuela’s chief financial officer, is one of Maduro’s most powerful confidants. 2) The Sanctions Czar. As chief counsel at the U.S. Treasury’s Office of Foreign Assets Control, Brad Smith is among those responsible for measures against Maduro and Vice President Tareck El Aissami as well as a ban on new debt offerings. 3) The Influencer. As the most vocal U.S. politician on Venezuela, Florida Senator Marco Rubio has Donald Trump’s ear as he lobbies to build pressure on Maduro’s regime. 4) The Financier, David Martinez, the billionaire distressed debt investor and chief executive officer of New York-based FINTECH Advisory, has a direct channel to El Aissami after making a US$ 300 million loan to the government backed by bonds with a face value of US$ 1.3 billion. 5) The Chinese Oil Man. Loans from China -- often tied to oil shipments -- have been one of the biggest sources of funding for Maduro while he’s remained locked out of conventional capital markets. Dai Houliang’s recent rise to chairman at China Petrochemical Corp., Asia’s largest oil refiner, could upend that. 6) The Military Liason. Diosdado Cabello, a high-ranking socialist party official with deep connections inside the military, holds sway over the unpopular Maduro. Locals own about 28% of Venezuela’s debt, according to TORINO Capital, much of which is believed to be in the hands of top military officials whose support Maduro relies upon to stay in power. 7) The Russian Benefactor. Russian President Vladimir Putin has been a longtime supporter of Maduro, most recently reaching a deal to restructure US$ 3 billion of debt owed by this nation. Honorable mention: The Flipping Witnesses: If anyone could help the U.S. build its case against the Maduro government, it’s Luisa Ortega Diaz, who was ousted from her post as the country’s top prosecutor in August. She told Bloomberg that Maduro and other top officials have long known about graft at PDVSA and other state firms but quashed investigations. Former PDVSA President Rafael Ramirez, also in exile after getting booted from his UN post, is another ex-official who could lend a hand. The information they might provide to the U.S. may tip the scales to harsher penalties. (Bloomberg: https://www.bloomberg.com/news/articles/2018-01-03/wall-street-s-venezuela-bet-rests-in-hands-of-these-seven-people)

 

Venezuela ends year still not paying CRYSTALLEX in billion-dollar expropriation settlement

Earlier last month LAHT broke the news that Crystallex -- owed US$ 1.4 billion for the expropriation of its Venezuela mining subsidiary -- had reached a billion-dollar settlement with Venezuela. But in a filing asking to postpone a hearing in the United States Court of Appeals, Venezuela reveals that it has still not complied with the initial US $40 million in payments on the settlement that were due November 30 and December 30. "In support thereof, the parties state that they have signed a settlement agreement that contains certain conditions precedent that Venezuela has not yet satisfied," Venezuela wrote in the motion asking for postponement of the Oral Arguments Hearing scheduled for January 16. "At Venezuela's request, Appellee CRYSTALLEX International Corporation consents to the requested relief and joins in this motion," Venezuela wrote. There was no explanation of why Venezuela had still not paid the initial consideration in the settlement agreement yet but CRYSTALLEX, in a footnote, reserved its right "to enforce its judgement pending a resolution of this appeal." "CRYSTALLEX has not yet received the first payment under the Settlement Agreement, but has been advised that the initial payment has been initiated by Venezuela," admitted Crystallex CEO Robert Fung, in a Notice of Motion being heard Wednesday, December 19 in bankruptcy court in Toronto. (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=2448353&CategoryId=10717)

 

Venezuela and Russia move forward into the dirty business of cryptocurrencies

Venezuela and Russia both have economies that are heavily dependent on the price of oil. Both countries are dealing with economic sanctions imposed by the United States. And in the past few days, both countries began moving forward with an official state cryptocurrency. Neither of offering sounds like it should be taken seriously. On Tuesday, the Financial Times reported that officials in Moscow say that President Vladimir Putin has commissioned his economic team to make a blockchain-based version of the Rouble. And last week, Venezuela’s information minister, Jorge Rodriguez, announced on state TV that his country’s new cryptocurrency, the petro, will be issued in “a matter of days.” Venezuela’s idea for the petro sounds like some grade-A bullshit. That doesn’t mean that Russia’s planned cryptocurrency is any better, it’s just earlier in the planning stages—though, it’s unclear how much planning Venezuela has really done. President Nicolas Maduro first announced his cryptocurrency strategy at the beginning of December as an alternative to the rapidly depreciating Venezuelan bolivar. The petro will be different from bitcoin and other cryptocurrencies because it will be backed by hard assets. Maduro on Wednesday certified that some 5 billion barrels of Venezuelan oil reserves will be used as financial backing for the petro, according to the nation’s oil ministry. The petro definitely sounds like a scam. Not only is it backed by that oil that also backs its fiat currency, it’s not even clear if Venezuela will be the owner of that oil for long. In August, Reuters reported that Venezuela was secretly offering Russia control of a significant chunk of its state-owned oil assets in exchange for further lines of cash and credit. The hastily thrown together petro also raises questions about what kind of protocol will be used to implement Venezuela’s blockchain. All-in-all, the only benefit that the petro seems to offer is that people might be able to stop carrying around huge sacks of cash to buy basic goods. A government that’s observing the sanctions can’t openly accept the currency, whether it is coming in the form of a paper bill or a string of ones and zeros. Shady actors could potentially take bitcoin or more anonymous altcoins. As for Russia’s still-in-the-works cryptocurrency, Sergei Glazev, an economic adviser to Mr Putin, told a recent government meeting that a cryptorouble would be a useful tool to get around international sanctions. We’ve become used to bankers calling bitcoin a fraud and regulators in countries with stable financial systems warning that tougher restrictions will be necessary for the future. Soon, we’ll see what happens when countries with really screwed-up financial systems start insisting that their coin is the best coin. (Gizmodo: https://gizmodo.com/venezuela-and-russia-move-forward-with-laughable-dive-i-1821720812)

 

Politics and International Affairs

Soldier arrested for killing pregnant woman in line for pork

Venezuelan authorities arrested a National Guard soldier over the weekend and accused him of shooting a pregnant 18-year-old during an incident that local media described as a melee over scarce pork. Alexandra Colopoy was gunned down by First Sergeant David Rebolledo, according to a tweet by the state prosecutor late Sunday night. No further details were provided, but critics of President Nicolas Maduro’s leftist government seized on the incident, calling it a stark example of the oil-rich country’s meltdown. Local media reported that Colopoy’s husband and a witness said the soldiers were drunk when they arrived at the queue for pork in a poor area of Caracas. They said the soldiers ordered the Venezuelans to move on because the traditional Christmas meat had run out, but the group refused. “The National Guard went crazy and started firing,” Colopoy’s spouse Bernabé said in a filmed interview circulating on social media. “She fell to the ground,” he said, adding his wife was five month pregnant. His brother Alejandro was also shot, but was recovering, he said. (Reuters, https://www.reuters.com/article/us-venezuela-death/venezuela-says-soldier-arrested-for-killing-pregnant-woman-in-line-for-pork-idUSKBN1ER03Q; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2448373&CategoryId=10717; http://www.laht.com/article.asp?ArticleId=2448395&CategoryId=10717)

 

Maduro is destructive King Herod, warns ex-oil czar

A former oil minister excoriated President Nicolas Maduro. Rafael Ramirez, who was the all-powerful head of the oil ministry and state energy company PDVSA for a decade, has long been a rival of Maduro. In recent months, Ramirez has grown increasingly critical of Maduro’s handling of a fourth straight year of recession that has triggered malnutrition, widespread food and medicine shortages, the world’s steepest inflation, and a surge in emigration. A furious Maduro ordered Ramirez to resign as the nation’s United Nations ambassador in New York last month after an article entitled the “The Storm” was perceived as an attack on his government. Maduro in a newspaper column on Sunday, accusing the leftist leader of behaving like biblical King Herod and plunging the oil-rich nation into economic devastation. (Reuters, https://www.reuters.com/article/us-venezuela-politics/venezuelas-maduro-is-destructive-king-herod-warns-ex-oil-czar-idUSKBN1EP0FD)

 

OP-ED: Venezuela's Nicolas Maduro has completely lost his mind

In the last few months, Maduro has transformed from a bloviating kleptocrat to a rabbit king, to a hyperinflation kool-aid drinker. On Monday, Maduro announced that he is increasing Venezuela's minimum wage by 40%. But seeing as Venezuela's inflation rate already increased by at least 1,000% last year, Maduro's gambit is only likely to increase the already-catastrophic suffering of his people. Children are starving at record levels under his watch. Citizens spend hours each day lining up for basic goods they probably won't be able to get, and then they get shot. Medical facilities are barren and medicines can only be found on the black market. Meanwhile, Maduro's cronies are living it up with exclusive parties and lavish feasts. Sadly, some in the West continue to delude themselves about Venezuela's condition. The European Left in particular remain convinced that Maduro is the victim of some American scheme to deny his nation productivity by starving its citizens. While this says a great deal about the depth of anti-Americanism on the intellectual Left, it also illustrates their penchant for the most insidious of fake news. Similarly, too few American liberals seem to care much about the stark contrast between suffering Venezuela and its thriving capitalist neighbor, Colombia. Fortunately, however, at least one person does get what's going on here. That would be President Trump, who has led the world in confronting Maduro's despotism. Much more must yet be done. The president should act urgently to tighten sanctions on those in Maduro's inner circle. At the same time, he should push for an oil export embargo that would deny the regime the lifeblood it needs to pay off its corrupted security forces. Further steps will have to be taken before this beautiful land, with Earth's largest proven oil reserves, will be able to start feeding its own people. (The Washington Examiner: http://www.washingtonexaminer.com/venezuelas-nicolas-maduro-has-completely-lost-his-mind/article/2644730)

 

Decoy cellphones and armored cars: How Venezuelans avoid being robbed

Armed robbers knock on windows of cars stuck in traffic and say, “Give me everything.” Men snatch cellphones and jewelry from passing pedestrians. Kidnappers follow people home in their cars at night, and demand ransoms from their families. Making it safely through the day in Venezuela’s capital, Caracas, one of the world’s most dangerous cities, requires a careful mix of planning and precaution. As the Venezuelan economy has crumbled, rising crime has created what one local group called a “feeling of permanent and silent fear.” (The New York Times: https://www.nytimes.com/interactive/2017/12/29/world/americas/venezuela-crime.html)