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Venezuela Rebellion Could Send Oil To $80

Venezuela Rebellion Could Send Oil To $80 thumbnail

Venezuela’s deteriorating crisis is “going to be the biggest geopolitical story to watch in the oil markets,” according to Helima Croft of RBC Capital Markets.

The economic, political and security situation in Venezuela has been frightening for quite a while, but things continue to grow worse. The new “constituent assembly,” put together to rewrite the constitution, is seen by most as an attempt to erode the nation’s democracy and consolidate power in the hands of the president.

In an ominous sign, more than a dozen soldiers reportedly attacked a Venezuelan military base on Sunday, and although the assault was put down, it highlights the increasing fragility of the state. “The significance lies in whether this suggests that Maduro is losing his grip on the military and whether we can expect to see more mutinies to come, or if this is just an isolated incident,” said Stuart Culverhouse, Global Head of Macro & Fixed Income Research at Exotix Capital in London. “Details are sparse and it’s probably too early to say either way at this stage.”

But even if Venezuelan President Nicolas Maduro manages to maintain power and push through a new constitution that defangs any restraints on his grip, he won’t be able to outrun the spiraling economic crisis. Perhaps the most visible economic issue is the debt payments that fall due this year. Venezuela has $5 billion in debt maturing before the year is out – both in sovereign bonds and in debt payments by state-owned oil company PDVSA. Related: How U.S.- Chinese Tensions Could Impact Energy Policy

That is an alarming figure given that the government has an estimated $3 billion in cash reserves, according to S&P Global Ratings, a paltry sum that means a default in the next few months is more likely than not. Venezuela has to pay $725 million in debt payments this month, although the problem gets really serious in October and November, when a combined $3.6 billion in debt must be paid to bondholders. The value of PDVSA’s bonds has plunged in recent weeks.

Any measures from the U.S. government would likely push Venezuela over the edge, one reason why the Trump administration has held back for now. But the U.S. Treasury Department has not taken some sort of embargo or sanctions policy targeting Venezuela’s oil sector off of the table. Venezuela exports just under 800,000 bpd to the U.S., which accounts for about half of the country’s exports. That source of revenue is the only thing keeping the government going right now.

“There’s a huge dependency on exports to the United States at a time of profound economic turbulence. It would be basically cutting off the single most important source of revenue. It would significantly raise the risks of default,” Roberto Simon, lead analyst for Latin America at FTI Consulting, told the WSJ.

The probability of default within 12 months, based on the value of credit-default swaps on Venezuelan debt, has an implied rate of 70 percent, according to the WSJ.

In a sign that the situation for PDVSA is growing worse, Reuters reports that the oil company is sending fewer barrels to its U.S.-based refiner, Citgo. The lower exports come as PVDSA has to send more oil to Russia’s Rosneft as repayment for a prior loan the Russian company made. But because those barrels sent to Rosneft are used as repayment, and aren’t sales, PDVSA will take in less revenue by reducing shipments to the U.S.

It is hard to see how Venezuela avoids a credit event in the next half-year or so. A Venezuelan default might not lead to contagion in the bond market, even if the value of missed payments is large – the WSJ says it could be one of the largest in history – because the Venezuelan economy has grown more isolated in recent years.

However, the effect on the oil price could be significant. Venezuela produces about 1.9 million barrels of oil per day, a volume that is nearly as large as the global surplus was at its maximum point during the market downturn in the past three years. If some significant portion of that goes offline, it would certainly send oil prices sharply up.

“The question is how fast does Venezuela fail?” Helima Croft of RBC Capital Markets said on CNBC last week. “The thing is Venezuela has no capacity to overproduce at this point. Their oil production is going in one direction and that is down,” she said.

“The national oil company owes $3.5 billion due in October-November. They are unlikely to make those payments,” Croft said. “We really do think a disorderly default is on the cards for Venezuela.”

A default might then put some of Venezuela’s oil assets in the sights of bondholders, who could try to seize oil cargoes in lieu of repayment. The end result, one way or another, is likely a decline of oil exports from Venezuela, sending a jolt through the oil market.

Ultimately, that could push oil prices up to $70 to $80 per barrel later this year, Croft predicts.

By Nick Cunningham of Oilprice.com



13 Comments on "Venezuela Rebellion Could Send Oil To $80"

  1. bobinget on Wed, 9th Aug 2017 6:37 pm 

    17m17 minutes ago

    SIX CONGRESSMEN FROM TEXAS, MISSISSIPPI, LOUISIANA SENT LETTER TO TRUMP JULY 28 WARNING AGAINST #VENEZUELA #OIL SANCTIONS: AP. #OOTT
    0 replies 0 retweets 0 likes
    Reply Retweet Like Direct message
    Lee Saks‏ @Lee_Saks 17m17 minutes ago
    More:
    INDUSTRY GROUP REPRESENTING CHEVRON, VALERO, CITGO, PHLIPPS66 SENT 2 LETTERS TO TRUMP LOBBYING AGAINST #VENEZUELA #OIL SANCTIONS: AP. #OOTT

  2. bobinget on Wed, 9th Aug 2017 6:45 pm 

    IMO, too little, too late. DJT has more on his plate then he can digest. ie: Russia, China, Yemen,
    KSA not to mention N. Korea.
    ONLY the Russians and Chinese are offering carrots. The Trump Administration offer threats.

  3. Anonymouse on Wed, 9th Aug 2017 7:28 pm 

    Leaving aside the small issue that oilpropaganda is staffed by retards, why would the spillover from amerikas regime-chanage-op there cause oil to rise to $80.00?

    I can think of numerous equally other valid reasons why oil should be $80.00 as well that have nothing to do with Venezuela. For example, oil is a finite, depleting resource that is far under-priced for what it can do, the damage it does and again, for that whole depletion thing….

    Or, why is the price not because of, say, the uS hysteria over North Korea. Or that President Putin is the new Hitler(tm)? Any of those equally flimsy reasons could also be used to price oil at any level the rigged market ‘decides’.

  4. GregT on Wed, 9th Aug 2017 8:24 pm 

    Big US Oil will do whatever it takes to keep fracking alive, and to keep their Canadian bitumen flowing. They don’t give a flying F about the consequences to the overall economy, or the environment. Nothing personal, just good business.

  5. Hello on Wed, 9th Aug 2017 8:31 pm 

    It’s about time oil goes back to serious money. Or did I buy my super efficient tin can car for nothing?
    It almost seems like it.

  6. rockman on Thu, 10th Aug 2017 1:06 am 

    $80/bbl? LMFAO!!! Venezuela produces 1.9 million barrels per day but only about 700,000 to 800,000 barrels per day gets sold on the open market. Venezuela is paying back loans from China and Russia by shipping more then half its oil for free. IOW its exports to other countries represents about 0.8% of global production. Which it is why it’s the 57th largest oil exporter.

    Somewhere along the way some folks got to thinking Venezuelan exports today were meaningful. Probably the same folks who don’t know that the US has exported 27 million to 31 million bbls per year of oil and refinery products to Venezuela since 2012. Mostly products. Which means that from a net perspective Venezuela has been even less to the global fossil supply then the above numbers indicate. It has also imported light oil from other countries, like Libya, to mix with its heavy crud.

  7. Anonymouse on Thu, 10th Aug 2017 1:28 am 

    You are something else narrativeman you know that?. The fact that both Venezuela and Libya, since you mentioned it, are\were relatively modest producers by volume, did not stop the amerikans and wannabes, in any way whatsoever from murdering Libya’s leader and turning it into a failed state. Nor is the volume or quality of Venezuela’s crude production curtailing the uS’s plans to overthrow that government by any means possible either.

    If the regime changers in washingdum and tel aviv had YOU adivsing them, they would likely have left those two nations alone based on your logic anyhow. But they dont follow your advice, or your input and have in fact, been going on a real tear these last couple decades to destabilize every oil producing nation they can, regardless of the volumes they produce. Up to and including Russia itself.

    Clearly, something far more than your simplistic bean\barrel-counting narratives is on their minds when set about stealing a nations oil resources.

  8. Cloggie on Thu, 10th Aug 2017 2:02 am 

    The higher the oil price, the better. Gives more power to Russia and will promote the rush into renewables in Europe, not until 2050, but as early as 2030-2035. It can be done:

    https://deepresource.wordpress.com/2017/03/24/the-netherlands-fossil-free-in-2030/

    https://deepresource.wordpress.com/2017/01/03/netherlands-sustainable-by-2030/

    Europe got rid of 23% of its green house gases over the last 27 years and increased its GDP with 46% regardless. Now with Paris in place and developed cheap renewable technology around, this can be speeded up:

    https://deepresource.wordpress.com/2017/07/24/europe-leading-the-way-in-reducing-greenhouse-gases/

  9. Makati1 on Thu, 10th Aug 2017 4:58 am 

    Cloggie… the TOTAL greenhouse gases went up way more than your claimed 23% cut in Europe. A few percent saved in one place means nothing in the overall picture. Europe could stop making ANY greenhouse gases and the TOTAL would still go up.

    We are at least 40 years too late to make a difference in our fate. Renewables don’t have the decades that would be needed to ramp up to even 50%, if it were even possible, but it is not. You and I will likely see the end of everything we know before we die. Or at least the beginning of the end year and the pain and suffering that is coming to all of humanity.

  10. Cloggie on Thu, 10th Aug 2017 5:27 am 

    Cloggie… the TOTAL greenhouse gases went up way more than your claimed 23% cut in Europe.

    Links and data please, not just claims. Or do you mean for the world, in that case you are right.

    A few percent saved in one place means nothing in the overall picture. Europe could stop making ANY greenhouse gases and the TOTAL would still go up.

    Why would it “go up”? What does that even mean?

    Unless total war breaks out, Europe is well positioned to achieve its aims and create a near 100% renewable energy base, well before 2050 and serve as an example for the rest of the world to follow.

    What else is new.

    #GooseWithTheGoldenEggs

  11. Davy on Thu, 10th Aug 2017 6:10 am 

    “Cloggie… the TOTAL greenhouse gases went up way more than your claimed 23% cut in Europe. A few percent saved in one place means nothing in the overall picture. Europe could stop making ANY greenhouse gases and the TOTAL would still go up.”

    Makat, you might add primarily because of Asia. At least Europe is making a stellar effort. Asia is now destroying the world with its C02

  12. Antius on Thu, 10th Aug 2017 6:22 am 

    $70 – $80 per barrel. More than enough to burst the Euro, US and Chinese debt bubbles and trigger another global depression.

    And there is no hope of borrowing our way out of this one. If this happens, global peak oil will happen this year, as a bankrupt US banking sector will no longer be able to pour silly money into new shale oil.

  13. bobinget on Thu, 10th Aug 2017 9:36 am 

    Comments noted.
    Rockman correctly noted Venezuela’s exports to China and Russia aren’t bringing income.
    Russia keeps oil flowing. China, driving a deal
    Venezuela can’t refuse.

    *You know of course, Venezuela is in hock to China and Russia for a cool 140 Billion USD.
    China and Russia NOW in the process of pulling off the biggest oil grab in history. Here’s how.

    To survive, a 1,200% inflation, Venezuela needs
    hard currency (credits) and fast. ONLY China is prepared to launch a fleet of container ships loaded with food stuffs, medicines, ‘vital’ consumer goods.

    Watch, if you can pull yourselves away from nightly
    real life dramas staring N. Korea or Russian election
    interference or presidential money laundering or
    slow moving RW coups.

    The biggest story REMAINS: Chinese and Russian takeover of Venezuela’s 18% of the earth’s oil deposits. No amount of misdirection will keep this observer distracted.

    *According to terms Venezuela is OBLIGATED
    to ship China 250,000 B p/d loan servicing.
    Up to today, with WTI as low as it is, China permitted Venezuela US exports to service CITGO’s three refineries. IOW’s waved 250,000
    obligation (till oil moved higher). That same oil, once destined for US will no longer become available at some point this year.

    Watch Russian dealings around CITGO.

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