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.
