February 14, 2018

Oil & Energy

 

Venezuela oil production is plummeting

Venezuela's main source of cash is dwindling at a breathtaking pace. The country's oil output in January fell to its lowest level in nearly 30 years, not including a brief oil strike in 2003, according to S&P Global Platts. A monthly OPEC report published Monday revealed Venezuela pumped 1.6 million barrels of oil per day last month. Production in January was down 20% from a year ago. The staggering decline is another sign of Venezuela's economic and political crisis. Venezuela has more crude oil than any other country in the world and it heavily depends on the commodity to power its economy. Crude oil makes up about 95% of Venezuela's exports. The country has no other source of foreign income. Yet the government-owned oil company, PDVSA, has pumped less and less oil for the last few years because of corruption, crumbling infrastructure and a massive debt crisis – and the United States could get tougher on Maduro very soon. Secretary of State Rex Tillerson said last week on his tour of Latin American countries that the administration is still considering a ban on Venezuelan crude oil exports to the United States. Experts say a complete oil ban would be a devastating blow to Venezuela's economy and Maduro's political fortunes. (CNN Money: http://money.cnn.com/2018/02/12/news/economy/venezuela-oil-production/; Oil Price: https://oilprice.com/Energy/Crude-Oil/OPEC-Production-Steady-In-January-As-Venezuela-Output-Plunges.html)

 

Venezuela's oil output crash is costly for U.S. refiners

U.S. Gulf Coast refiners are paying the price for shrinking Venezuelan crude output. U.S. production is at an all-time high, while output from Venezuela, despite a modest increase in January, is in decline. As a result, U.S. crude’s typical premium to heavy Venezuelan oil shrank to as small as 31 cents a barrel Friday, the narrowest since October. Most U.S. Gulf Coast refiners profit when crude grades like those from Venezuela are at a large discount to WTI because these so-called heavy crudes comprise 40% to 60% of the oil they process, said Fernando Valle, oil and refining analyst at Bloomberg Intelligence. Venezuelan oil is getting more expensive relative to U.S. benchmark amid falling output. “The narrowing can be attributed to a rapidly changing fundamental picture in both markets,” Mara Roberts Duque, a New York-based analyst at BMI Research, said by email. “Rising U.S. production is keeping a lid on the WTI upside while continued declines in Venezuelan output are supporting the local benchmark.” (Bloomberg: https://www.bloomberg.com/news/articles/2018-02-12/venezuela-s-oil-output-crash-comes-at-a-cost-to-u-s-refiners)

 

Official: US believes ex-Venezuela oil czar took bribes

U.S. prosecutors believe Venezuela's former oil czar received bribes as part of a major graft scheme that allegedly took place in this nation's oil industry, an American official familiar with the probe said. Rafael Ramirez, who was one of Venezuela's most powerful officials until he quit as the country's U.N. ambassador in December, was named as a bribe recipient although not charged in an indictment against five other former senior officials that was partially unsealed Monday. In the indictment, prosecutors in Houston allege two of the charged individuals told businessmen that proceeds from bribe payments they made in exchange for quick payments and contracts with Venezuela's state-run oil giant PDVSA would be shared with a senior Venezuelan official, identified in the unsealed portion as "Official B." That unidentified Venezuelan politician is Ramirez, a U.S. official told The Associated Press. The official agreed to talk about the case only on condition of anonymity because they were not authorized to discuss the matter. (Fox News: http://www.foxnews.com/world/2018/02/13/official-us-believes-ex-venezuela-oil-czar-took-bribes.html; Bloomberg: https://www.bloomberg.com/news/articles/2018-02-12/ex-venezuela-officials-charged-with-money-laundering-at-pdvsa)

 

Commodities

Venezuela army clashes with illegal miners, 18 reported dead

Soldiers clashed with illegal miners in southern Venezuela on the weekend, killing 18 people in a region notorious for violence and gang rivalries, a lawmaker and local media said. Bolivar state Governor Major General Justo Noguera said a military unit had fought off an attack, but gave no more details. “An investigation is under way,” he told reporters. Local newspaper Correo del Caroni reported that 17 men and one woman died in the incident on Saturday morning in an area known for gold and diamond mining. (Reuters, https://www.reuters.com/article/us-venezuela-miners/venezuela-army-clashes-with-illegal-miners-18-reported-dead-idUSKBN1FV0XV)

 

Economy & Finance

PDVSA bonds join Venezuela bonds in trading flat (defaulted)

Following consultations with major market participants, the Emerging Markets Trading Association (EMTA) is recommending that, for all trades entered into on or after February 12, 2018, all Bonds issued by PDVSA that are on a U.S. sanctions exceptions list (see the Annex to the General License No. 3 related to the Executive Order: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/vz_bond_list_long.pdf)  should, unless otherwise agreed, trade “flat”. The Executive Order, together with the General Licenses, can be found here: https://www.emta.org/WorkArea/DownloadAsset.aspx?id=10480, but counterparties are urged to refer to the U.S. Treasury’s website for further updates. To the extent that bonds are added to this Venezuela General License No. 3 Annex, they will be subject to this Market Practice, and to the extent that bonds are deleted from this Annex, they will not be subject to this Market Practice. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2450683&CategoryId=10717)

 

US Treasury publishes 2 new Venezuela & PDVSA debt restriction explanations

The U.S. Department of the Treasury’s Office of Foreign Assets Control has published two new Venezuela-related frequently asked questions (FAQs).  The FAQs provide additional guidance on the debt-related prohibitions in Executive Order (E.O.) 13808, including the meaning of “new debt” for the purposes of E.O. 13808 and the receipt of certain late payments from the Government of Venezuela, including Petroleos de Venezuela, S.A. (PDVSA). OFAC does not consider debt that was created prior to August 25, 2017 to be “new debt” for purposes of E.O. 13808 so long as the terms of the debt instrument (including, for example, the length of the repayment period or any interest rate applied) agreed to by the parties do not change on or after August 25, 2017. For debt created on or after August 25, 2017, U.S. persons are not permitted to accept payment from PDVSA or other segments of the Government of Venezuela, absent a specific license or other authorization from OFAC, if payment for a debt is not received within the applicable period specified in E.O. 13808 (90 days for PDVSA, 30 days for other segments of the Government of Venezuela)? Because receiving payments outside of these specified maturity periods generally constitutes a prohibited dealing in debt, U.S. persons should ensure that payment terms accord with the applicable debt prohibition. In circumstances where PDVSA or another segment of the Government of Venezuela fails to pay a debt in full within 90 or 30 days, as applicable, U.S. persons must obtain a specific license from OFAC before accepting payment after the expiration of the applicable period. License applications involving circumstances that do not meet these criteria will be reviewed on a case-by-case basis with a presumption of denial, with the exception of activity that is in U.S. national security or foreign policy interests, including humanitarian-related transactions, legal services, or personal communication-related services. (US Treasury Department: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#553)

 

Colombia wants to build Venezuela financial rescue plan

Colombia has contacted international lending agencies about devising a financial rescue plan worth up to US$ 60 billion for neighboring Venezuela if President Nicholas Maduro leaves power, Colombia’s finance minister said in an interview on Friday. Hyperinflation and severe recession in oil-rich Venezuela are prompting Venezuelans to flee over the border to Colombia, now about 2,000 a day, Colombian Finance Minister Mauricio Cardenas said. Officials the International Monetary Fund, Inter-American Development Bank and World Bank are just beginning to understand the impact of the exodus, he said. “What happens when Maduro falls? We should not improvise. There should be a plan because Venezuela will require financial support,” Cardenas said (Reuters, https://www.reuters.com/article/us-colombia-venezuela-aid/colombia-wants-to-build-venezuela-financial-rescue-plan-idUSKBN1FU00L)

 

Venezuela's 20-Cent bonds are one hedge fund's emerging-market pick

Peter Kisler says one of the best bets in emerging-market debt is a country racked by quadruple-digit inflation, a plunging currency, punishing sanctions and months of overdue payments. (Bloomberg, https://www.bloomberg.com/news/articles/2018-02-09/venezuela-s-20-cent-bonds-are-hedge-fund-s-emerging-market-pick)

 

The Economy Is Full of Crypto (And Collective Delusion)

We have talked a few times around here about a socialist republic that has been hit hard by sanctions imposed by the U.S. government and that, in response, is planning to issue its own cryptocurrency to raise money. I mean Venezuela. Venezuela's government is the one that is planning to issue a cryptocurrency to replace money that it has lost due to the policies of the U.S. federal government. (Bloomberg, https://www.bloomberg.com/view/articles/2018-02-11/the-economy-is-full-of-crypto-and-collective-delusion)

 

Venezuela’s economy is so bad, parents are leaving their children at orphanages

Poverty and hunger rates are soaring as Venezuela’s economic crisis leaves store shelves empty of food, medicine, diapers and baby formula. Some parents can no longer bear it. They are doing the unthinkable. Giving up their children. There are no official statistics on how many children are abandoned or sent to orphanages and care homes by their parents for economic reasons. But interviews with officials at FUNDANA and nine other private and public organizations that manage children in crisis suggest that the cases number in the hundreds — or more — nationwide. FUNDANA received about 144 requests to place children at its facility last year, up from about 24 in 2016, with the majority of the requests related to economic difficulties. A study by the Catholic charity CARITAS in poorer areas of four states found the percentage of children under 5 lacking adequate nutrition had jumped to 71% in December from 54% seven months earlier. For years, Venezuela had a network of public institutions for vulnerable children — traditionally way stations for those needing temporary or long-term protection. But child-welfare workers say the institutions are collapsing, with some at risk of closing because of a shortage of funds and others critically lacking in resources. So, increasingly, parents are leaving their children in the streets. In the gritty Sucre district of Caracas, for instance, eight children were abandoned at hospitals and public spaces last year, up from four in 2016. In addition, officials there say they logged nine cases of voluntary abandonment for economic reasons at a child protective services center in the district in 2017, compared with none the previous year. A child-welfare official in El Libertador — one of the capital’s poorest areas — called the situation at public orphanages and temporary-care centers “catastrophic.” One of Venezuela’s main adoption agencies, PROADOPCION, said that in 2017, his organization received 10 to 15 requests monthly from pregnant women seeking to give up their babies, compared with one or two requests per month in 2016. Overwhelmed, the organization had to turn down most of the women. It accepted 50 children in 2017 — up from 30 in 2016. (The Washington Post: https://www.washingtonpost.com/world/the_americas/venezuelas-economy-is-so-bad-parents-are-leaving-their-children-at-orphanages/2018/02/12/8021d180-0545-11e8-aa61-f3391373867e_story.html)

 

Politics and International Affairs

Lima Group countries slam Venezuela election plans, Maduro unwelcome at Americas Summit

The "Lima Group" of Latin American nations plus Canada on Tuesday criticized Venezuelan President Nicolas Maduro's decision to hold a presidential election on April 22 and urged him to reconsider the date. In a statement, the countries said there could not be free and fair elections in Venezuela as long as there were political prisoners. Peru's foreign minister also told a news conference that Maduro would not be welcome at the Summit of the Americas to be held in Lima in April. (The Daily Mail: http://www.dailymail.co.uk/wires/reuters/article-5388569/Lima-Group-countries-criticize-Venezuela-election-date.html#ixzz572Nw2XRg9

 

US says new sanctions can be applied it Maduro holds illegitimate elections

In a review of US Secretary of State Rex Tillerson’s trip to Latin America and the Caribbean, Francisco Palmieri, Principal Deputy Assistant Secretary of State for Western Hemisphere Affairs, again condemned the Maduro regime’s call for a snap election in which the main opposition candidates are barred from running: “We are working together with the countries of the region to ensure that Venezuelan elections are free, fair, and internationally verifiable. There must be international election observation for successful, legitimate elections to take place, and we will not accept elections that do not allow for the full participation of all political actors in Venezuela. It’s clear that the path that the Maduro regime is moving down at this time will result in an illegitimate election… If the Maduro regime holds an illegitimate election in April, the United States will continue to use all our political, diplomatic, and economic tools to help restore true democratic order in Venezuela. It’s hard to imagine an election, a snap election held in less than 60 days, meeting the international standards for a free, fair, and transparent election, particularly given the unwillingness of the Venezuelan regime to allow meaningful participation by the opposition parties or to address the conditions on the ground that resulted in multiple illegitimate elections last year… Secretary Tillerson has been very clear that what we want in Venezuela is a peaceful transition and the restoration of constitutional democratic order. The best way to solve the multiple crises inside Venezuela is for the Venezuelan people to be able to exercise their democratic rights and select the leaders, the real leaders, who can solve the multiple problems that the Maduro regime is inflicting on the country.” He said the Secretary advocated for increased regional attention to the crisis in Venezuela during every discussion. “It was clear the region shares our concerns in this regard. We must continue to work to fulfill the requirements of the Inter-American Democratic Charter. As Secretary Tillerson said in Argentina, we simply cannot allow and stand idly by to see a total destruction of democracy in Venezuela. With our regional partners we continue to pressure the corrupt Maduro regime to return to a democratic constitutional order… We would like to see an orderly, peaceful transition to democratic order in Venezuela.” Palmieri declined to elaborate on possible new sanctions: “I don’t think at this time I have anything to announce with regard to what kind of sanctions would be put in place with regard to oil, but the Secretary was clear: the United States will continue to consider the use of every political, diplomatic, and economic tool we have to help restore democracy in Venezuela to the benefit of the Venezuelan people… I think we will use all the tools available to us at any moment, at any time, and in any place, to help the Venezuelan people restore their democratic system of governance.” Regarding the possibility that President Maduro will attend the Summit of the Americas meeting in Lima next April, Palmieri said: “Should President Maduro decide to attend that summit, he would certainly have a lot to answer for in terms of democratic governance and corruption. And any Venezuelan participation would have to address those issues.” (US Department of State: https://fpc.state.gov/278200.htm)

 

Venezuela fears ‘invasion’ after U.S. military chief visits Colombia

Venezuela on Monday accused neighboring Colombia of planning a bombing campaign or a “military invasion” amid heightened tensions in the region and a mass exodus fueled by Venezuela’s collapsing economy. “In Colombia, they are planning to revive eras that had ended in human history, like military bombing, a military invasion or the occupation, through blood and gunfire, of a peaceful country like Venezuela,” said Venezuela’s chief prosecutor, Tarek William Saab, according to the state-run AVN news agency. “We will not allow it.” Saab didn’t provide proof of his allegations, but other regional allies pointed to the weekend visit to Colombia by Admiral Kurt Tidd, head of U.S. Southern Command. Tidd and Colombian Vice President Óscar Naranjo met in the troubled coastal city of Tumaco on Saturday. According to the vice president’s office, they met to review bilateral efforts to stem the flow of drugs from Colombia’s Pacific coast. Bolivian President Evo Morales, a staunch Caracas ally, however, called Tidd’s presence “suspicious.” On Monday, the commander of Colombia’s armed forces, Gen. Alberto Mejía, suggested he had his hands too full with domestic issues to worry about Venezuela’s accusations. The statements also come as Venezuelan neighbors, including Colombia, Brazil and Guyana, have been tightening border controls in recent weeks to try to contain the flow of hundreds of thousands of Venezuelan migrants. (The Miami Herald: http://www.miamiherald.com/news/nation-world/world/americas/venezuela/article199715099.html)

 

The International Criminal Court opens preliminary examinations into Venezuela

The Prosecutor of the International Criminal Court (ICC), Fatou Bensouda, has announced they will open preliminary examinations into the situation in Venezuela. The ICC Prosecutor announced she would examine crimes allegedly committed in Venezuela since at least April 2017 in the context of demonstrations and related political unrest. She noted that the continued demonstrations led to excessive use of force to disperse demonstrators and arrested and detained thousands of people and that many of those detained have been allegedly subjected to serious abuse and ill-treatment. It was also reported that some groups of protestors resorted to violent means, resulting in some members of security forces being injured or killed. According to the Office of the High Commissioner for Human Rights, 124 people have been killed in the framework of the protests: 46 killings were allegedly have been committed by the security forces and 27 by the pro-government armed groups. The International Federation for Human Rights hailed the move and urged Venezuela “to conduct thorough, impartial, and independent investigations into those allegedly responsible for international crimes committed on their soil and to cooperate with the Court during these preliminary examinations.” Venezuela’s Foreign Ministry promptly rejected the decision and claimed not to have received any formal notice thereof. (FIDH: https://www.fidh.org/en/issues/international-justice/international-criminal-court-icc/in-the-face-of-brutal-crackdowns-the-international-criminal-court); and more in Spanish: (Noticiero Venevisión, http://www.avn.info.ve/contenido/venezuela-rechaza-apertura-examen-preliminar-parte-corte-penal-internacional)

 

Trump denounces Cuban, Venezuelan repression

President Donald Trump has once again denounced the “repressive regimes” of Cuba, Venezuela, Iran and North Korea and said that his administration is on the side of all those people around the world suffering “persecution” because of their religious faith. Trump delivered his remarks at the annual National Prayer Breakfast in Washington, an event that traditionally blends politics and religion. The most recent State Department report on religious freedom, released last August, said that the religious environment in Cuba had improved in recent years, and in the case of Venezuela, the report only expressed concern over alleged “anti-Semitic” commentary in the state-run media. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2450572&CategoryId=10718)

 

Rubio says world would support Venezuelan military ‘removing a dictator’

Marco Rubio took to Twitter on Friday morning to suggest that the world would support Venezuela’s military if it decided to “restore democracy by removing a dictator” as the country’s President Nicolas Maduro prepares for an April election some are already predicting to be rigged. (Bloomberg, https://www.bloomberg.com/news/articles/2018-02-09/rubio-says-world-would-support-venezuela-removing-a-dictator)

 

European Parliament calls for further sanctions on Maduro regime

The European Parliament has called for more sanctions on high officials of the Maduro regime and raise the possibility of taking economic steps against the state oil company (PDVSA) here. The EU legislature also demanded that political rights be restored to opposition politicians so they can take part in the announced presidential election. The vote in the European Parliament was 480 in favor, 51 against and 70 abstentions. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/internacional/parlamento-europeo-pidio-ampliar-sanciones-a-funcionarios-del-gobierno-venezolano)

 

Venezuela loses right to vote at United Nations

Venezuela has lost its right to vote in the United Nations General Assembly because of the non-payment of its contributions, according to the organization. The country was in the same situation last year until regained the right to vote in that body after paying part of its debt. The UN rules establish the loss of the right to vote in the General Assembly for Member States that have outstanding payments to the organization's budget for an amount equal to or greater than the contributions that corresponded to them during the previous two years. Stéphane Dujarric, spokesman for the United Nations, said today that, as of January 29, these eight countries were in that situation: Venezuela, the Central African Republic, Dominica, Equatorial Guinea, Grenada, Libya, Suriname and Yemen. (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=2450732&CategoryId=10717)

 

Venezuela’s misery fuels migration on epic scale

Hundreds of thousands of Venezuelans are fleeing their country’s misery and pouring across borders into nearby countries, particularly Colombia, creating a sharpening challenge for the region. As the collapse of Venezuela’s economy deepens, the number of those fleeing is accelerating. Nearly 3 million Venezuelans—a 10th of the population—have left the country over the past two decades of leftist rule. Almost half that number—some 1.2 million people—have gone in the past two years, according to Tomás Páez, a Venezuelan immigration expert at Venezuela’s Central University. Some 550,000 Venezuelans were in Colombia at the end of 2017, a 62% increase from a year before, according to the Colombian government, with another 50,000 entering so far this year. (The Wall Street Journal: https://www.wsj.com/articles/venezuelas-misery-fuels-migration-on-epic-scale-1518517800)

 

Colombia, Brazil tighten borders as Venezuelan crisis deepens

Colombia and Brazil tightened border controls with Venezuela on Thursday as both nations grapple with a mounting influx of hundreds of thousands of desperate migrants fleeing a worsening economic crisis. In a visit to the border region, Colombian President Juan Manuel Santos said he would impose stricter migratory controls, suspend new daily entry cards for Venezuelans and deploy 3,000 new security personnel along the frontier, including 2,120 more soldiers. Brazil's Defense Minister Raul Jungmann, speaking in the northern border town of Boa Vista, said the government would also deploy more troops and start relocating tens of thousands of Venezuelan refugees who have crossed the open frontier to seek food, work and shelter. Both countries said they would take measures to count the number of Venezuelan migrants who have entered their territory: Brazil through a census and Colombia through a registry. The moves to tighten border security could threaten a key social safety valve for desperate Venezuelans as hyperinflation and a severe recession grip their country. The steps also signaled a mounting regional frustration with Venezuela's unpopular President Nicolas Maduro, who will seek re-election on April 22 amid conditions that the United States and other countries say are stacked against a divided opposition. "I want to repeat to President Maduro - this is the result of your policies, it is not the fault of Colombians and it's the result of your refusal to receive humanitarian aid which has been offered in every way, not just from Colombia but from the international community," Santos said. While Venezuelan professionals such as doctors and engineers have found work in Colombia's big cities or its oil industry, the bulk of the poor have settled in border towns. (NASDAQ: https://www.nasdaq.com/article/colombia-brazil-tighten-borders-as-venezuelan-crisis-deepens-20180208-01858)

 

Desperate Venezuelans pouring into Brazil

Officials in northern Brazil are demanding federal aid to help manage the influx of people seeking food and shelter. Brazilian President Michel Temer interrupted his Carnival vacation to fly to Roraima on Monday and promised to provide whatever aid is necessary to the country's northern state, which has been overwhelmed by tens of thousands of desperate Venezuelans fleeing their country's collapsing economy and political turmoil. Some 40,000 Venezuelans have poured into the Roraima capital, Boa Vista, overwhelming local government agencies and infrastructure in the city of 400,000. Many of the displaced Venezuelans are living in the streets. The president suggested that some migrants could be moved to other states but insisted that Brazil would not turn its back on the people fleeing misery. Defense minister Raul Jungmann later said that the army would set up a field hospital along the border and work with local officials to build triage centers, the G1 news portal reported. There are growing fears among residents that the Venezuelans will take jobs away from Brazilians, who are concerned about their own country's lackluster economy. Two residences housing Venezuelans were set alight last week — five people were injured. A local man has been arrested in connection with the attack. The Roraima government gave federal officials a list of demands last week, including equipment, vehicles and its own security forces. Temer's government has so far agreed to double the number of federal security forces at the border to 200. After his meeting with local officials Temer reaffirmed that the government will not block Venezuelans from entering but it may try to organize the flow. (DW: http://www.dw.com/en/desperate-venezuelans-pouring-into-brazil/a-42558289)

 

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.