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Page added on November 28, 2014
The First Oil-Exporting Casualty Of The Crude Carnage: Venezuela
In the aftermath of OPEC’s failure to cut oil production, Russia has been acting surprisingly sanguine, perhaps as a result of less leverage in its system as compared to America’s own high yield-funded shale complex – now that it is a race to who will default first and be forced to take production offline – with Putin today saying “Russia will cope with the rout in crude oil”, and adding that “we are satisfied overall with the situation and do not see anything so extraordinary in what is happening. Winter is coming and I am sure that the market will come into balance again in the first quarter or toward the middle of next year.” Maybe it will, or maybe not, if indeed as those with a working frontal cortex suggest the plunge in crude prices is merely a function of a collapse in global demand now that the worldwide slowdown which has gripped Japan, Europe and China. In that case, the race to the bottom between Russia with its higher cash costs, and the US shale sector, loaded to the gills with billions in junk bonds, will be an epic one to watch.
But one country whose fate is now virtually assured – with a happy ending now sadly out of the picture – is the same one that stormed out furious at yesterday’s failure by OPEC’s cartel members to carve out a consensus leading to higher oil prices: Venezuela.
Here pretty much everything is about to go unhinged, with what now looks like an almost inevitable sovereign default as the endgame, coupled with the removal of a few million barrels of oil from the global supply chain, something which all the other OPEC members will be delighted by.
For confirmation one can merely look at the Venezuela bolivar, which earlier today feel to a record low of 150.76 VEF/USD on the black market according to dolartoday.com, which tracks rate at Colombian border, and as reported by Bloomberg moments ago. Indicatively, the official rate is 6.3 VEF/USD; the first unofficial rate that based on Sicad I, is 12 VEF/USD, while the second unofficial rate, per Sicad II is 50 VEF/USD.
But what best shows that for Venezuela it is essentially game over, is that as the chart below shows, Venezuela’s international reserves declined $1.3 billion in the week after President Nicolas Maduro transfered $4 billion of Chinese loans to the central bank. In other words, the scrambling oil exporter was forced to burn one third of its Chinese bail-out loan to keep itself solvent. The country’s reserves dropped to $22.2 billion today, according to central bank data.
As Bloomberg also notes, Maduro on Nov. 18 ordered the Chinese loan proceeds to be moved from an off-budget fund, so that they would show up in reserves and help boost investor confidence in an economy beset by the world’s highest inflation and widest budget deficit. The following day, Venezuelan bonds rose the most in six years in intraday trading.
“If the plan was to calm the bondholders, then burning through a third of that money in five working days doesn’t do it in any way,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said in a telephone interview. But while Venezuela’s bondholders will be livid, Venezuela’s “friends” from the OPEC cartel will be delighted: after all its default means one less producer on line, and a natural increase in the price of oil.
Trading in Venezuela’s dollar bonds was closed today for a U.S. holiday. It will reopen on Monday at which point we expect the market to be as close to “offer-only” as possible, because burning through over $1 billion in reserves in 1 week with crude plunging to under $70 means that Venezuela now may have about 6 months of liquidity left at best, since one thing is certain: China will not throw more good money, as in Venezuela bailout loans, after bad.
The only thing that is uncertain is how long until some army general figures out what is going on and decides to go “Kiev” on that paragon of best efforts socialism, Venezuela’s soon to be ex-president Nicolas Maduro.
19 Comments on "The First Oil-Exporting Casualty Of The Crude Carnage: Venezuela"
JuanP on Fri, 28th Nov 2014 6:44 pm
Venezuela is very likely to be the first oil exporter to go kaput. The situation there is a mess.
Makati1 on Fri, 28th Nov 2014 7:08 pm
I’m sure the powers in DC are happy about Venezuela’s situation and probably have a “general” waiting to take over. But, it may not happen that easily. We shall see.
Plantagenet on Fri, 28th Nov 2014 7:20 pm
Don’t lose confidence in Maduro and Venezuela yet. When things get difficult, Maduro says he is visited by a little bird occupied by the spirit of Hugo Chavez who tells what he needs to do to save socialism in Venezuela.
redpill on Fri, 28th Nov 2014 8:07 pm
“Venezuela’s situation”? And who’s responsible for that “situation” Mak?
Was it a U.S. plot all along to have that country run so ineptly? Do you think it untrue that Chavez made plenty of his “generals” rich while carrying out his Bolivarian Revolution?
Makati1 on Sat, 29th Nov 2014 2:12 am
redpill, I know that the oligarchs in the US are getting totally obese financially over the way the US government is pouring your wealth into their bank accounts. If another country had been trying to overthrow the US government over the last 20+ years like the US has been trying to do in Venezuela, what would the US be like? I doubt it could be any worse than what it is today.
You live in a socialist country. Over half of US citizens get direct payments from the government and ALL of you get government subsidies that offset your cost of living. Social Security, Medicaid, Medicare, Unemployment insurance, disability, Welfare, Food stamps, government retirement, veteran’s benefits, and on and on.
Best to not throw stones when you live in a glass house.
theedrich on Sat, 29th Nov 2014 4:29 am
Actually, what Makati1 says has something to it. Let s face it: America is on top of the world only because the rest of the world is in worse situations, and the U.S. is exploiting the comparative weakness of everyone else. QE, ZIRP, inflation of the reserve currency and redefinition of standard metrics, not to mention mass importation of ThirdWorlders to bolster the political Left and provide cheap labor (never mind the “externalities” with which they overload the system), are all coverups and temporary bandaids for the diminishing returns in every criical sphere. The increasing power of hostile hackers, whether foreign-governmental or otherwise, the recent moves to circumvent the dollar in international trading, plus maniacal Mohammedanism are just some of the shoals on which our ship of state may soon run aground. Given the increasing narcoticism, impudence and ignorance of the low-IQ, carefree, unemployed and always volatile multitudes, it is questionable how much longer the entire American experiment can continue.
Davy on Sat, 29th Nov 2014 6:53 am
Poor Mak, your dominoes of super heros are falling or failing to live up to your propaganda fantasy. Folks you can tell the gravity of the situation with these competing American forces by the desperation of Mak’s propaganda bitch. He is a canary in the coal mine.
Mak with Cheese hero in South America is “goin” down. This was true with or without the American meddling which we are sure is present. We know how large the Venezuelan population is in America and they are all anti MADuro. We know Chavez economics is a failure as an economic policy. IMA Russia is following some of these economic principals. Chavez economics shows all the typical examples of the oil curse mixed in with radical socialism.
Like the USSR, Chevez economics was nothing more than a wealth redistribution scheme that worked while the golden goose was laying eggs. Now the goose, nest, and golden eggs are gone. We see a butchered economy with even the poor suffering from shortages. Chavez squandered a fortune on militarism, foreign adventurism, and cronyism.
I will tell you that in the beginning I admired Chavez. He was a light for the poor. He was their ally with more than words. Obama in comparison is a hypocrite preaching social justice from the golf course with his wealthy pals. Chavez in the beginning was true to his word and the Bolivarian Revolution.
Where Chavez erred was thinking he could have a hybrid economic situation by having the Bolvarian revolution in the Capitalistic world. He erred thinking he could milk his petroleum industry and other industrial sectors for the revolution. He erred thinking he could steal from the multinationals and then live without them. His ideas were bold and spoke of social justice but his actions were what we have seen throughout history with failed applications. Much of Chavez issues were hubris and power mongering. He was in the end deceived by his own policies with greed, pride, and fantasy. That is how you make a small fortune from a large one.
Makati1 on Sat, 29th Nov 2014 7:21 am
Did you say something Davy? I skip your long rants. Denial is obvious in all of them. That flag you wave is so blood stained from US wars of domination and plunder that it is barely white and blue but a field of red.
Davy on Sat, 29th Nov 2014 8:03 am
OOh, Mak, you having problems with criticism because of your cognitive dissonance with the failure of your super heroes? As the board propaganda bitch your flag is the grandest and biggest. It is a flag of hypocrisy. It is a blame game flag. It is a flag of a coward. You can’t stand the fact that you are trapped in a mega Asian city living on a social security check from your hated alma mater.
You are facing a horrible situation in Asia with the coming Asian food shortages to start in a year or two. The Manila metropolis can never feed itself so all those 25MIL people all around you is going to be like a flash fire in a skillet. I am sorry you are facing all this at your ripe old age of 70. Too bad you deserted your family and now have an uncertain future in a faraway land. Who is going to wipe your butt and change your diaper?
paulo1 on Sat, 29th Nov 2014 8:29 am
Come on you guys, give it a break already. Both of you had good points and your personal attacks do not do you or your opinions justice.
You don’t have to agree or be amenable. However, it can’t get much lower in your lack of civility towards each other. If we were at the bar this would have been the cue for you both to rapidly push back your chairs and start taking swings at each other across the table.
Davy on Sat, 29th Nov 2014 9:00 am
I am all for it Paulo but Mak insists on continued personal attacks. I am the type that if you attack me and my family on a regular and methodical basis I will respond. If that is diminishing my message so be it. I have made a big effort from months ago to ignore what I can from Mak. I have even tried to make friends with the Makster being we are both doomers. Mak knows what it takes to make friends with me but he relishes attack comments. He is addicted to them. So I am sorry Paulo but I will bar fight the bastard until he compromises.
ghung on Sat, 29th Nov 2014 9:09 am
Perhaps Davy needs to decide which end of the string he’s on in this relationship.
https://upload.wikimedia.org/wikipedia/commons/8/89/Organ_grinder_with_monkey.jpg
Aire on Sat, 29th Nov 2014 9:24 am
Davy, I only see some attacks from each of you but mostly Mak aka BillT comment are about how you are not harsh enough on the US government — I’m not exactly sure he blames you for just living and being American.. I really doubt that.
This last attack on him by YOU seemed a little intense to be honest but I doubt you mean anything to bad about it.
As for Venezuela – I personally feel the capitalistic countries lead by the USA are greatly responsible for the many unnecessary hardships their economy have and are going through. Like you said Davy the USSR went thru a similar situation and what do these two countries have in common – a pricing problem of oil (your golden goose Davy) – The part most people can’t be 100% percent sure about is it the capitalist fault and is it intentional … I would say yes
bobinget on Sat, 29th Nov 2014 10:14 am
When the thug V. Putin says:
“Russia will cope with the rout in crude oil”
Few analysts are paying close enough attention.
Later, Putin walks back the implicit threat by saying:
“we are satisfied overall with the situation and do not see anything so extraordinary in what is happening. Winter is coming and I am sure that the market will come into balance again in the first quarter or toward the middle of next year.”
Keep in mind, Russia and Iran are in to the death struggles with Saudi Arabia over Syria. Iran represents serious (perceived) religious threats to Saudi Islamic dominance..
Russia and Venezuela are not party to this Islamic
struggle but are keenly aware of which side to be on.
I don’t use the perjorative “thug” in front of President Putin’s name lightly or w/o manifest evidence.
As i’ve been saying on these pages for a year,
Putin aims to cripple Saudi’s leadership of OPEC.
This recent OPEC meeting KSA struck back. Using
it’s extra million barrels a day as a weapon of war.
The Saudis, in effect declared open war on Russia.
Frightened of implications of actual truth, most oil analysts claim KSA is after killing off North American tight oil and oil sands. Just collateral damage to KSA whose real enemy on political, religious ground are Russia and Iran.
Tight oil producers in North Dakota are not supporting Syria’s Assad government.
I dare say most oil workers never heard of Syria.
Two Saudi wells produce more oil then all Canadian Oil Sands producers combined.
It’s Putin’s move next.
Will promote promote increased internal violence within KSA? Will he unleash his vast army of hackers?
Saudi Arabia is nothing if not an entirely ‘corrupt police state’. Think about those three words.
Did Suxnet leave a return address?
Actually, removing 500,000 to one million barrels off market is no problem as long as it promotes higher oil prices.
If you doubt Russia, Iran, are at war with KSA, best brush up on recent history.
This move (not lowering production) has already had a ruinous effect on OPEC. Watch Russia, Venezuela and Iran in this epic struggle.
Kenz300 on Sat, 29th Nov 2014 10:15 am
Time for Venezuela to end their subsidies on fuel to the public………
Davy on Sat, 29th Nov 2014 11:53 am
G-man a picture says a thousand words. I enjoyed that one. I will make one final comment on the Mak attacks. I made a pact with the devil when I agreed to actively criticize my country I also agreed to defend her fairly and justly. There are other Americans on this site that frankly could give a shit about the unfair and unbalanced criticism. This is a mistake at this point in time when the world is coming apart. The wrong public relations will bite us in the ass. Mak is a propagandist of the worst kind because he is effect with his lies and distortions. I have cut back my responses to his lies and distortions but I will not end them.
ghung on Sat, 29th Nov 2014 6:18 pm
Davy- Ghung’s Rule #1: You can’t fix people, even if you think you have a right to.
I’m not sure if Mak has a real bone to pick or if he’s just trying to validate his ex-patriotism, but it occurs to me that this country was founded, in part, by some ex-patriots (talking the same sort of shit) who were branded as traitors. Anyway, it’s telling that the American Dream still has so much power over Mak, considering how much time he spends demonising it.
Davy on Sat, 29th Nov 2014 6:33 pm
Well, G, I am doing better than a few months ago when I appear to be obsessed with the Mak attacks. Give me some time. One does not overcome mental conditions overnight. I am working at it because I know most of the competent and exceptional commentators on this board find the barroom brawls immature. I will try to stick to the argument of the facts and avoid the personal attacks even if attacked.
kushal kumar on Sun, 30th Nov 2014 5:24 pm
The oil and gas turmoil just begun in November 2014 impacting global economy was well predicted on 2 June 2014 to begin in November this year by this writer in article – ” Stressful times ahead for world economy in 2015 and 2016″ – published online at http://www.astrologyweekly.com. The purpose was and is to serve as a guide to investors and economy think tanks/policy makers. Hopefully, the purpose is being served.