April 11, 2019

Oil & Energy

Venezuela reports collapse in oil supply, tightening global market

Venezuela’s oil output sank to a new long-term low last month due to U.S. sanctions and blackouts, the country told OPEC, deepening the impact of a global production curb and further tightening supplies. In a monthly report released on Wednesday, the Organization of the Petroleum Exporting Countries said Venezuela told the group that it pumped 960,000 barrels per day (bpd) in March, a drop of almost 500,000 bpd from February. Venezuela’s production figure brings its numbers closer to outside estimates, which have been saying the country’s economic collapse has taken a bigger toll on its oil industry. Output in Venezuela, once a top-three OPEC producer, has been declining for years due to economic collapse. In March, supply dropped due to U.S. sanctions on state oil company PDVSA designed to oust President Nicolas Maduro, and power blackouts. (Reuters: https://www.reuters.com/article/us-oil-opec-report/venezuela-reports-collapse-in-oil-supply-tightening-global-market-opec-idUSKCN1RM1BT)

 

Oil edges higher as Venezuela output collapses

Oil prices rose to their highest in more than five months Wednesday as a sharp decline in Venezuelan oil production more than offset the effect of a weekly report showing another increase in U.S. inventories of crude oil. West Texas Intermediate futures, the U.S. oil benchmark, ended 1% higher at US$ 64.61 a barrel on the New York Mercantile Exchange, the highest since Oct. 31. (The Wall Street Journal: https://www.wsj.com/articles/oil-edges-higher-as-venezuela-output-collapses-11554911649)

 

Venezuela congress authorizes parallel PDVSA board to negotiate foreign debt

Venezuela’s opposition-controlled National Assembly on Tuesday allowed a parallel board of directors of state-run oil company PDVSA to negotiate foreign debt ahead of a looming payment deadline that could put its crown jewel overseas asset, U.S. refiner CITGO, at risk. The board’s new head will be former PDVSA executive Luis Pacheco, said lawmaker Elias Matta, head of the assembly’s energy commission. The expanded board would also be able to represent the company overseas, Matta said in congress. The ad hoc board, which the Assembly on Tuesday expanded to nine members from five, is part an effort by opposition leaders who have disavowed the regime of Nicolas Maduro to control PDVSA’s overseas assets. Maduro’s ruling Socialist Party continues to control the company’s day-to-day operations. The move will allow the board to decide whether to make a US$ 71 million interest payment due April 27 on PDVSA’s 2020 bond, which is backed by a 49% stake in CITGO, said opposition lawmaker Elias Matta, the head of the Assembly’s energy commission. “They will evaluate if they are going to pay the bonds. That is now their decision,” Matta said in a telephone interview, adding that the board would have to inform the Assembly should it decide to pay. “We will do everything we have to do to protect the republic’s assets.” (Reuters, https://www.reuters.com/article/us-venezuela-politics-pdvsa/venezuela-congress-allows-parallel-pdvsa-board-to-negotiate-foreign-debt-idUSKCN1RL2CQ; https://www.reuters.com/article/venezuela-politics-pdvsa/venezuela-national-assembly-approves-expansion-to-pdvsa-ad-hoc-board-idUSL1N21R14F)

 

Two of Venezuela's four crude upgraders restart after blackout: document

Two of Venezuela’s four crude oil upgraders, which are necessary to process the country’s extra-heavy crude into exportable grades, have restarted after halting activities due to blackouts in March. The PETROCEDENO upgrader, a joint venture between state oil company PDVSA, France’s TOTAL SA and Norway’s EQUINOR ASA, and the PETROPIAR joint venture with U.S. CHEVRON Corp both restarted, according to the document. The upgraders, together with the Petrosinovensa mixing facility, were set to produce 298,000 barrels of upgraded crude on Tuesday. (Reuters, https://www.reuters.com/article/us-venezuela-oil/two-of-venezuelas-four-crude-upgraders-restart-after-blackout-document-idUSKCN1RL2FE)

 

Economy & Finance

Maduro is cut off from US$ 400 million in cash held at the IMF

As Nicolas Maduro steps up his search for cash overseas, another door is slamming shut. The International Monetary Fund suspended the Venezuelan strongman’s access to almost US$ 400 million of special drawing rights, citing political chaos since National Assembly President Juan Guaidó claimed in January that he was the nation’s rightful leader, said two people familiar with the matter. Venezuela already whittled its SDR holdings down from almost US$ 1 billion in March 2018. The IMF’s caution marks at least a temporary defeat for Maduro’s government as it seeks to gather money held abroad to stave off a devastating economic collapse that could undermine key support from top military commanders. The SDRs represent one of the regime’s last remaining sources of cash. Almost two-thirds of Venezuela’s US$ 9 billion in foreign reserves are in the form of gold, which has been difficult to liquidate because of U.S. sanctions. Guaidó’ s camp has all but declared victory in the battle over who has access to the SDRs. Ricardo Hausmann, a Harvard professor and economic adviser to Guaidó, said the IMF is safeguarding the assets until a new government takes over. “Those funds will be available when this usurpation ends,” he said in an interview at Bloomberg headquarters in New York. Venezuela’s relationship with the IMF has long been contentious. In 2007, then-President Hugo Chavez pledged to cut ties with the fund. That plan was never carried out because leaving the IMF risked triggering a technical default in which investors could demand immediate repayment on some bonds. Since then, Venezuela has defaulted on more than US$ 10 billion in payments. (Bloomberg: https://www.bloomberg.com/news/articles/2019-04-10/imf-freezes-venezuela-funds-as-members-debate-who-s-president)

 

Venezuela removes eight tons of gold from central bank

Venezuela removed eight tons of gold from the central bank’s vaults last week, and the cash-strapped socialist regime is expected to sell the bullion abroad as it seeks to raise hard currency in the face of U.S. sanctions, a lawmaker and one government source said. With sanctions imposed by Washington choking off revenues from exports by state oil company PDVSA, Nicolas Maduro’s increasingly isolated regime has turned to sales of Venezuela’s substantial gold reserves as one of the only sources of foreign currency. The government source said the central bank’s reserves had fallen by 30 tons since the start of the year before U.S. President Donald Trump tightened sanctions, leaving the bank with around 100 tons in its vaults, worth more than US$ 4 billion. At that rate of decline, the central bank’s reserves would nearly disappear by the end of the year, leaving Maduro’s regime struggling to pay for imports of basic goods. (Reuters, https://www.reuters.com/article/us-venezuela-gold-exclusive/exclusive-venezuela-removes-eight-tonnes-of-gold-from-central-bank-sources-idUSKCN1RL247)

 

Fund sues Venezuela for US$ 26 million in unpaid bonds, interest

Global fund manager PHARO has sued Venezuela for US$ 26 million in unpaid bond principal and interest, a U.S. court filing showed, as legal claims by creditors piled up against this nation whose economy is suffering from a hyperinflationary collapse. In a complaint filed with the New York State Supreme Court late on Monday, PHARO said two funds that it controls own US$ 1.5 million in bonds that matured in 2018 and more than US$ 200 million in bonds set to mature in October 2019. Venezuela failed to pay interest and principal on the 2018 bonds and missed three interest payments on the 2019 bonds, it added. (Reuters, https://www.reuters.com/article/us-venezuela-bonds/fund-sues-venezuela-for-26-million-in-unpaid-bonds-interest-idUSKCN1RL25D)

 

Venezuela unemployment nears that of war-ruined Bosnia, IMF says

Venezuela’s unemployment rate is soaring to levels unseen in the world since the Bosnian war came to an end more than two decades ago, according to the International Monetary Fund. Joblessness will reach 44.3% in 2019 and will slam nearly half of Venezuela’s labor force in 2020, the IMF said in its World Economic Outlook published on Tuesday. Bosnia and Herzegovina’s joblessness was 50% in 1996, immediately after its 3 1/2-year domestic war, according to the multilateral’s database. The Venezuelan depression is among the deepest economic catastrophes ever suffered by a nation outside of wartime. This year alone, the Andean nation’s output will shrink by a quarter -- the most worldwide since the 2014 start of the Libyan civil war, according to the IMF. The contraction has become so large that it’s generating “sizable drag” on growth not just in Latin America, but also in emerging markets as a whole. (Bloomberg, https://www.bloomberg.com/news/articles/2019-04-09/venezuela-unemployment-nears-that-of-war-ruined-bosnia-imf-says)

 

Politics and International Affairs

OAS votes to recognize Juan Guaidó’ s ambassador

The members of the Organization of American States (OAS) voted on Tuesday to recognize Juan Guaidó’ s ambassador as the country's official representative to the organization. The move solidifies Nicolas Maduro's exit from the regional body, further isolating Venezuela from its neighbors. The OAS is the second multilateral organization in the hemisphere to recognize representatives designated by Guaidó, after the Inter-American Development Bank accepted Ricardo Hausmann as its Venezuelan envoy last month. With 18 votes in favor, nine against, six abstentions and one absence, the OAS confirmed Gustavo Tarre as Venezuela's new delegate. After a heated debate, the OAS permanent council made the decision by a vote of 18 in favor, nine against, and six abstentions. One delegate was absent. The council asked OAS Secretary General Luis Almagro to send the text to UN Secretary General Antonio Guterres. The text states that "Nicolas Maduro's presidential authority lacks legitimacy and his designations for government posts, therefore, lack the necessary legitimacy." The countries that voted against Tuesday's decision were Venezuela, Antigua and Barbuda, Bolivia, Dominica, Grenada, Mexico, Saint Vincent and the Grenadines, Suriname and Uruguay.  (DW: https://m.dw.com/cda/en/oas-votes-to-recognize-juan-Guaidós-ambassador/a-48269376; France24: https://www.france24.com/en/20190409-oas-recognizes-Guaidó-envoy-until-new-venezuela-polls)

 

 ‘You shouldn’t be here’: U.S. pushes U.N. to pull Maduro envoy’s credentials

Vice President Mike Pence on Wednesday urged the United Nations to revoke the credentials of Nicolás Maduro’s ambassador to the world body, portraying him as a loyalist to the country’s disputed president, Nicolás Maduro, and to a government that has allowed crime, violence and starvation to rise. In a 20-minute speech to the United Nations Security Council, Mr. Pence called for a formal recognition of Juan Guaidó as the rightful leader of Venezuela, which he called “a failed state — and as history teaches, failed states know no boundaries.” Mr. Pence turned to Maduro’s representative, Samuel Moncada Acosta, telling him, “You shouldn’t be here.” “You should return to Venezuela and tell Nicolás Maduro that his time is up,” Mr. Pence said. “It’s time for him to go.” The Council meeting addressed the situation in Venezuela, which officials and experts are increasingly describing as a humanitarian crisis that has led about 3.5 million citizens to flee the country. Mr. Pence also accused China and Russia of meddling in efforts to remove Mr. Maduro. While “Russia and China continue to obstruct at the Security Council,” Mr. Pence said, “rogue states like Iran and Cuba are doing all they can to prop up the Maduro regime.” But on Wednesday, he did not give a firm answer when asked by a reporter where the United States would draw a line on Russia’s involvement. He also did not give a timeline when asked if the possibility of American military intervention, an option long played up by administration officials, was drawing closer as conditions in Venezuela worsened. In briefings held before Mr. Pence arrived to speak, (The New York Times: https://www.nytimes.com/2019/04/10/world/americas/pence-venezuela-un-envoy.html; Bloomberg, https://www.bloomberg.com/news/articles/2019-04-10/pence-demands-un-expel-venezuela-s-ambassador-support-Guaidó)

 

U.N. Aid Chief says 'very real humanitarian problem' in Venezuela

United Nations aid chief Mark Lowcock told the U.N. Security Council on Wednesday that there is a "very real humanitarian problem" in Venezuela and that the world body is ready to do more if it gets more help and support from all parties. "The scale of need is significant and growing. The United Nations is working in Venezuela to expand the provision of humanitarian assistance," Lowcock said. "We can do more to relieve the suffering of the people of Venezuela, if we get more help and support from all stakeholders." He briefed the council on a recent U.N. report on the situation that estimates about a quarter of Venezuelans are in need of humanitarian assistance and painted a dire picture of millions of people lacking food and basic services. Some 3.4 million Venezuelans have left the country, Lowcock said. This number was expected to rise to some 5 million by the end of the year, said Eduardo Stein, the joint envoy for Venezuelan refugees and migrants for the U.N. refugee agency and the U.N. migration agency. Lowcock stressed the need for humanitarian efforts to be neutral, impartial and independent. Lowcock said the number of U.N. staff in Venezuela had nearly doubled since 2017 to some 400 and that U.N. agencies were working in all 24 Venezuelan states. (The New York Times: https://www.nytimes.com/reuters/2019/04/10/world/americas/10reuters-venezuela-politics-un.html)

 

US, EU at odds over Venezuela sanctions

The crisis in Venezuela is causing divisions between the Trump administration and EU governments, which have failed to back Washington's call for tougher sanctions against Nicolas Maduro. Disregarding evidence presented at a NATO summit last week indicating that Maduro is digging in with the aid of Russia, the EU decided against widening Venezuelan sanctions during a foreign ministers’ meeting Monday. “The EU is against implementing sanctions on Venezuela as a country,” said Spanish Foreign Minister Josep Borrel at a press briefing following the meeting. He left open the possibility of applying individual sanctions against some members of Maduro’s government. Last week, the United States expanded sanctions to block Venezuela’s oil exports by targeting its tanker fleet, declaring that 34 of its vessels could be embargoed or seized through new measures announced by the U.S. Department of Energy. Europe, on the other hand, continues receiving oil from Venezuela despite crippled production. Spain’s oil company REPSOL recently reached an agreement with the cash-strapped Maduro government to pay down the company’s US$ 2 billion investment with added shipments of oil. And almost 100 Spanish companies continue operating in Venezuela, including one of Spain’s largest banks, BBVA, which could be vulnerable to future sanctions. Borrel has said he discussed Spain’s financial stake at a meeting with U.S. Secretary of State Mike Pompeo last week in Washington and complained about administration plans to toughen the embargo on Cuba. Spain’s large presence in Venezuela — where the Spanish expatriate community numbers about 250,000 dual nationals — makes Madrid the lead government on EU policy toward the Latin American country. Italy and Portugal also have substantial expatriate communities and commercial interests in Venezuela including investments by Italy’s oil company ENI. The Trump administration used last week’s NATO summit to argue Venezuela presented a new threat from Russia, which has supplied sophisticated arms and military advisors to revamp Maduro’s air force, armored units and special forces. Borrel has said Russia’s presence in Venezuela is small and should not constitute a “problem” for NATO. Spanish Prime Minister Pedro Sanchez has said that Spain would “roundly oppose” any U.S. military action against Venezuela and that he would urge the rest of the European Union to do the same. Spanish officials say they are doubling down on efforts to find a political solution through negotiations between Maduro and Guaidó. Speaking from Brussels Monday, Borrel said Maduro had requested an “activation” of the EU-led Montevideo group, which includes Mexico, Uruguay and other Latin American governments offering mediation. (VOA: https://www.voanews.com/a/us-eu-at-odds-over-new-sanctions-against-venezuela/4869617.html)

 

Honduran, Nicaraguan, Venezuelan leaders not invited to Salvadoran's swearing-in

El Salvador’s incoming president Nayib Bukele said on Tuesday he would not be inviting the leaders of Honduras, Nicaragua and Venezuela to his June 1 inauguration after criticizing them as illegitimate rulers. In a Twitter post, the 37-year-old Bukele confirmed news reports that invitations were not being extended to Juan Orlando Hernandez, president of neighboring Honduras, Daniel Ortega, president of Nicaragua, or Venezuelan President Nicolas Maduro. Bukele, who won an election in February, did not say why the presidents would not be asked, but he has previously criticized all three as men who did not deserve to be in power due to controversies that have clouded their administrations. (Reuters, https://www.reuters.com/article/us-elsalvador-inauguration/honduran-nicaraguan-venezuelan-leaders-not-invited-to-salvadorans-swearing-in-idUSKCN1RM0BD)

 

Maduro says Venezuela ready to receive international aid

Nicolas Maduro has said his country was ready to receive international aid following a meeting with the Red Cross chief, as this nation plunged into a new round of blackouts. "We confirm our readiness to establish cooperation mechanisms for international assistance and support," Maduro said on Twitter on Tuesday. Maduro, who denies that the current situation in Venezuela can be described as a humanitarian crisis, reiterated after the meeting that collaboration with the International Committee of the Red Cross (ICRC) should respect "the Venezuelan legal order." An ICRC delegation led by its president Peter Maurer has been here since Saturday and is due to finish its visit on Wednesday. The ICRC said last Friday in a statement it was "concerned by the serious impact that the current situation has on Venezuelans, especially those who do not have access to basic services." (Al Jazeera: https://www.aljazeera.com/news/2019/04/maduro-venezuela-ready-receive-international-aid-190410083550252.html)

 

Red Cross regains access to Venezuela jails, military prisons

The International Committee of the Red Cross has regained access to prisons in Venezuela, including highly guarded military facilities where dozens of inmates considered political prisoners are being held, as strongman Nicolas Maduro seeks to counter mounting criticism of his government’s human rights record. International Red Cross President Peter Maurer on Wednesday wraps up a five-day visit to Venezuela, where the Geneva-based group is among international organizations trying to carve out a space to deliver badly needed humanitarian aid and technical assistance free of the winner-take-all politics contributing to the country’s turmoil. The group had been denied access in Venezuela at least since 2012. The renewed visits in Venezuela began March 11 when a Red Cross delegation visited a model prison in Caracas, the Simon Bolivar Center for the Formation of New Men. Eighty-seven foreigners are being held. But more significant was the visit two weeks later to the military-run Ramo Verde prison outside Caracas, which holds 69 people the opposition considers political prisoners. Most people held at the Ramo Verde are military personnel accused of plotting to overthrow Maduro. Many more, including five oil executives with U.S. passports, are being held in the basement jail of the military counterintelligence headquarters in the capital. In another attempt to counter growing criticism, Maduro last month welcomed a delegation sent by the United Nations’ High Commissioner for Human Rights. He previously had called s999uch visits a politically biased threat to Venezuela’s sovereignty. (NBC News: https://www.nbcnews.com/news/latino/red-cross-regains-access-venezuela-jails-military-prisons-n992981)

 

Raúl Castro pledges Cuba will never abandon Venezuela

Raúl Castro has promised that Cuba will never abandon its leftist ally Venezuela despite US “blackmail”, even as the Trump administration threatened more sanctions over its support. In a speech to the national assembly, the head of the Cuban Communist party said the island had been increasing defense preparedness in recent months in view of mounting US hostility. The island nation had also been adopting economic measures to contend with the Trump administration’s tightening of the decades-old US trade embargo, Castro told legislators. “We will never abandon our duty of acting in solidarity with Venezuela,” Castro said. “We reject strongly all types of blackmail.” Shortages of basic goods have increased recently, including flour, eggs and chicken, with the state even reducing the size and circulation of its newspapers due to a lack of newsprint. The situation could worsen further in coming months in view of the tightening US trade embargo, Castro warned. (The Guardian: https://www.theguardian.com/world/2019/apr/10/raul-castro-cuba-never-abandon-venezuela)

 

U.S. ready to take on Russia and other 'foreign powers' in Venezuela, John Bolton says

President Donald Trump's national security adviser John Bolton has warned nations seen as obstacles to U.S. plans for Latin America that they must leave Venezuela and stop defending the socialist government opposed by the Trump administration. Responding to Tuesday's Newsweek article discussing the recent arrival of Russian, Chinese and Iranian planes intended to support Maduro and his government, Bolton told radio host Hugh Hewitt that "President Trump is determined not to see Venezuela fall under the sway of foreign powers."  "Look, our objective is a peaceful transition of power to Juan Guaidó and the opposition," Bolton said during Wednesday's program. "But let’s not forget we’ve got between 40,000 to 50,000 American citizens in Venezuela." "We’ve got countries, as you mentioned, Colombia and Brazil on the border with millions of Venezuelan refugees who have come across. We’ve got terrorist organizations like the ELN [National Liberation Army] and FARC [Revolutionary Armed Forces of Colombia] who threaten Colombia," he added. "We’re going to protect American national interest, and Maduro and his cronies ought to know that President Trump is very serious when he says all options are on the table." (Newsweek: https://www.newsweek.com/bolton-russia-china-iran-venezuela-powers-1392304)

 

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.