A full-scale Venezuelan default could push up oil prices
https://www.economist.com/news/finance-and-economics/21732148-and-it-could-allow-fellow-opec-countries-cheat-their-production-cutsDec 7th 2017
ON NOVEMBER 30th, as oil tsars from the Organisation of the Petroleum Exporting Countries (OPEC) and Russia met in Vienna, Venezuela’s former oil minister, Eulogio del Pino, once one of their number, was seized by armed guards at dawn in Caracas, and taken to jail. His arrest was not publicly acknowledged in Vienna. His replacement, Manuel Quevedo, a general in the national guard, attended OPEC and was received with the usual deference.
Also unmentioned was how Venezuela, embroiled in a massive, messy debt default, is doing plenty of OPEC’s dirty work. Since November 2016, when OPEC first agreed with Russia to cut output to push up oil prices, Venezuela’s has fallen by 203,000 barrels a day (b/d), to 1.86m b/d in October. That is more than twice the cut it agreed with OPEC of 95,000 b/d.
If its production continues to fall—some analysts say it could be down to 1.6m b/d in 2018—it could either drive up oil prices further or absolve some countries from the cuts they agreed to last month. “Venezuela gives OPEC and Russia wiggle room,†says Helima Croft of RBC Capital Markets.
Venezuela’s output has lurched lower since 2016 amid economic mismanagement by the government of President Nicolás Maduro. A cash crunch hit payments to the oil-service companies that work on the world’s most abundant oil reserves. Making matters worse has been the partial default on debts of the government and PDVSA, the state oil company that provides 95% of the country’s exports. PDVSA has made $9bn of payments this year, and owes $5bn in 2018.
In recent weeks the disarray has become farcical. The Maduro administration arrested more than 60 oil executives, accusing them of corruption, and replacing them with soldiers such as Mr Quevedo, who have no clue how to produce oil. In a Christmas message on December 3rd, Mr Maduro compounded the absurdity by announcing a planned cryptocurrency called the “petroâ€, backed by Venezuela’s oil reserves, to evade American financial sanctions. He might as well have asked people to believe in Santa Claus.
The threat to Venezuelan oil production is real enough, though. Vortexa, a firm that tracks flows of crude in real time, says shipments to America, where Venezuela provides heavy crude feedstock for its own and other refineries, plunged in the three months to November 30th. On Vortexa’s data, China has replaced America as Venezuela’s biggest export market. But it is losing patience. This week Sinopec, a state oil company, sued PDVSA over unpaid debts....
