This page has been archived and commenting is disabled.
Venezuelan Bonds Are Collapsing, FinMin Denies Devaluation Looming
While talking heads proclaim - incorrectly - that low oil prices are unequivocally good for the US economy, it is very much not the case for oil producers around the world. Most notably, Venezuela - which 'needs' oil prices above $100 to maintain its socialist utopia - and currently ranks at a lowly 100th on the world's prosperity index, is in grave trouble if this trend continues. Venezuelan bonds plunged to new record lows today as oil prices hit fresh cycle lows, strongly suggesting default or currency devaluation is imminent. However, as is usual (think Mexico) Finance Minister Rodolfo Marco Torres ruled out devaluation even as oil price drop exacerbates country’s finances. As one analyst noted, "there's broad understanding that in the absence of any corrective policy measures that these guys are going to be in serious trouble." It appears they already are.
As we noted previously, While Saudi Arabia tests the mettle of North American producers, it could be Venezuela that is the most vulnerable.(via Nick Cunningham of OilPrice.com)
As a fellow OPEC member, Venezuela has been the most vocal about the need to cut oil production and has called for an emergency meeting of the 12-member oil cartel. That is because Venezuela is in a much weaker position than many of the other member countries, and the recent drop in prices has raised alarm in Caracas.
Using state-owned oil company PDVSA as a piggy bank has allowed the Venezuelan government to increase social spending over the last decade, a key political objective of the late President Hugo Chavez and his successor, Nicolas Maduro. However, using oil revenues for a wide array of spending priorities has also starved PDVSA of money needed for investment in order to boost oil production, let alone keeping output level. Since 2000, Venezuela has seen its oil output drop from 3.5 million barrels per day (bpd) down to 2.5 million bpd.
The bad news for President Maduro is that there was major unrest earlier this year even when oil prices were above $100 per barrel. That is because oil makes up 97 percent of Venezuela’s foreign earnings, and the country needs oil prices of around $120 per barrel for its bloated budget to break even.
Venezuela is in an economic crisis. Annual inflation is estimated to be in excess of 60 percent. The country’s economy actually shrank at a rate of 5 percent in the first six months of 2014. Shortages of food, medicine, shampoo, diapers, and other basics are so common that the government rolled out a plan this past summer to fingerprint people at grocery stores.
Crime is so rampant in the capital that people are afraid to go out at night. For those who can afford it, leaving the country has become the best option.
The government is heavily indebted, and Venezuela’s bonds are now competing with Ukraine’s for the mantle of the world’s riskiest. With bond yields surpassing 16 percent, Venezuela cannot keep up. There is a 50-50 chance of default within the next two years, according to credit rating agency Standard & Poor’s.
The sudden 20 percent decline in oil prices since June is compounding the problem and has the potential to throw the country into crisis. “Venezuela’s oil prices have been high for several years now, and the country is still struggling to pay its debt at those prices,” Russ Dallen of Caracas Capital Markets told The Wall Street Journal. Lower oil prices could bring things to a head.
The Maduro government desperately needs a rise in oil prices, but Saudi Arabia has so far rebuffed calls for an emergency meeting as it pursues a strategy of waiting out higher cost competitors. OPEC does not plan on meeting until Nov. 27. That is still an eternity for a country that is beginning to unravel.
* * *
And it appears other oil producers are suffering too... the Naira hits a new record low...
»
- 6945 reads
- Printer-friendly version
- Send to friend
- advertisements -
" While talking heads proclaim - incorrectly - that low oil prices are unequivocally good for the US economy"
Wait...what?
Exactly.
It's bad for the top percent, but good for everyone else.
So therfore it must be bad...
>_>
Socialist utopia? Ok, we get it. You wanted it so stop crying already....
GEESH. Where is Hugo when you need him... oh, that's right, he wanted his gold back so they took him under... er, behind the woodshed.
I was most surprised to learn that their bonds hadn't already collapsed.
Fill up your gas tanks, WW3 is about to start.....
https://www.youtube.com/watch?v=agXgcpOchog
http://www.debate.org/opinions/is-alex-jones-crazy - hes indeed a crazy fella!
Off topic..
http://news.yahoo.com/obama-seeks-review-syria-strategy-sees-assad-remov...
We all knew they would get their war in Syria
low oil price is bad for shale, the shale boom is the only piece of good news holding up the shine in the economy.
if shale goes bust, there's nothing to hide the economy behind anymore.
General question: How exactly does one short Vene bonds, then? Interactive Brokers only? Doubt normal accounts have access to this stuff.
Symbols to short? VENZ 2024?
I thought the US was the world's largest oil producer.
I believe we're also the largest consumer of it.
It's like a paradox, init?
We ban exports of this lifeblood-of-the-economy precious bodily fluid. Illegal to export.
Bad for who?
The oil producers that pay too much for producing oil? Lower prices would make for companies that are leaner, meaner, and even break up the big ones, spawning smaller companies that compete with each other better.
The banksters?
The politicians?
What about the millions of people that have to pick between rent, putting food on the table, or going to work???
Actually I'm greatly enjoying the schadenfreude of it all. I think we should follow William Seward's lead with Alaska and offer them 4 cents an acre for the entire country.
"What about the millions of people that have to pick between rent, putting food on the table, or going to work???"
<font/sarc on> Why, there's Section 8, SNAP and reduced fare bus tickets. Let them eat cake! <font/sarc off>
If you're looking to throw a pity-party for the oppressed masses, you can expect about five million starving Chavistas to show up at the Mexican border, looking for a fresh source of handouts...
This must be bullish, right? I mean, if Delta airlines is up 48% in one month, why can't all stocks keep going higher as the NY FED keeps pushing it even without QE.
I mean, why stop dancing? Right, chuck prince? it's not like you could gain 10% or lose 60%.
How many Trillions in debt was issued to less developed countries under the assumption of $100 oil 4-EVA ? Oh, the humanity ! ....
and while we are on oil...is any airline going to start a airline ticket war and drop fares as fuel prices collapse? or are we all now well behaved enough to understand that during these times it is OK to price-fix and make cartel arrangements? if it's OK to steal in the stock markets and pay minor fines, why wouldn't it be OK to price fix?
while we are at it, does this mean it is ok to rob a bank as long as you give a little bit back as a "fine"? isn't that what eric holder said?
we need capital punishment for corruption crimes. only way.
Sure, they'll drop fares, and charge you $500 for each piece of carry-on luggage. Unless you're in the exclusive Million Mile Club, in which case, it'll only be $375.
i have a relative who buys fuel for a large package delivery company and i asked him about that, he says the was they hedge, they won't be paying that much less than bfore unless prices stay this low for a long while. they hedge to insulate themselves from huge upswings, but that laso means they don't benefit from quick drops in prices like this unless it lasts a long time
GMO labeling undecided in Oregon, down by 6,634 with 13,000 ballots contested, 15,000 uncounted
Over 3 million refugees have fled Syria, 10 million others displaced as new peace plan proposed
Colorado cops show off cannabis harassment tactics for CNBC crew, give tickets for cigarettes
Redistribution of Hydrocarbons According to Henry Kissinger
GBP also falling
Nothing worse than a blind man throwing his new box of boomerangs at the ghosts in his front yard before someone tells him how they actually work.
Only a caracas would buy a niger bond.
Could not happen to a nicer Communist.....they have shut down the borders from Colombia to stop the illegal trade of goods....like food and crap...lol.....they are now dying a very fast death....it used to be a slow one....another great school example of how Socialism fails but it will never be taught or learned for that matter....
That would harm interstate commerce in things like El Che tshirt sales and the much larger sales of "Studies" diplomas and annex services of our gubbermint run young adult fun camps. Think of the debt issuance slow down. The financial industry needs the supply of debt. Think of "the economy".
OMG...the Naria chart.....
looks like Nigerians are going to have to step up internet scams by about 20% just to keep up
Is there Obola over there? ....haven't heard much lately from MSM
Pemex bonds got hammered http://www.bloomberg.com/news/2014-01-16/pemex-sells-record-amount-of-30... there's one borne every minute
Throw one communist under the bus to screw another one. Not a bad plan. Ya and China gets cheap oil for our factories.
Win win win