The First Oil-Exporting Casualty Of The Crude Carnage: Venezuela

Tyler Durden's picture

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, 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.

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FieldingMellish's picture

Chinese naval base in 5, 4, 3, 2...

Publicus's picture
Time for Venezuela to use the Yuan as their currency.
jbvtme's picture

back in the day a tyrant would have to mobilize an army for a few years in order to subjugate a country. now a couple of key strokes gets the job done.

PhilB's picture

Amazing how the writer is clueless about the subject. Media is just so malinformed that the reader must beware of anything he reads. Trading in Venezuela bonds is NOT closed for the US holiday today!! What nonsense! These bonds are OTC and exchange traded in Europe! The prices moves we have seen already today, down about 3% on average. 

SWRichmond's picture

I think it's really important for everyone to understand that what is really happening is the onset of a crushing deflationary wave, owing to the stoppage of QE and the resultant global downturn.  It is being told as an oil story, don't need gasoline to drive to work if you don't have a job.

Keep on buying stocks and see how that turns out.

rccalhoun's picture

i love price discovery.  competetion, business fundementals, good old fashished price war, etc.   shows at least one market cannot be manipulated by tne american central bank for at least one day.    get used to it as i see this as a start to price discovery and the demise of the fed put on domestic equities, real estate and credit.

finally, a crack in the status quo. 

Seize Mars's picture


No, a movement in some fake "price" is not a crack in the status quo. There is no movement in "prices" that will de-throne the bad guys and leave the good guys (you and me) in a state of freedom and peace.

There is a way to tell you are free: you don't have to give your income to someone, you don't have to pay rent on land you "own," and you can choose what currency to settle your accounts.

We are going to see all kinds of price movements in the near future. None of them are good news.

kaiserhoff's picture

As far as I can tell, no one is manipulating grain markets.  Maybe no one cares;)

It does seem that the QE thing has gotten away from them.  The Fed essentially admitted, they don't have a handle on how to influence interest rates or money supply anymore.  Ooops.  BenYellen are in deep weeds.

Seize Mars's picture

Yeah, you know, ADM and Monsanto are chumps, right?

oooBooo's picture

There isn't just one united group that are in lock step with each other. If there were we would have been finished off years ago. While most of them benefit from the same things, some benefit from some things while others don't.

The whole shale boom and now the saudis dropping price to fight it benefits someone in those elite clubs. 

Also the end game of inflating assets is to deflate them, bankrupt the imprudent and get all their stuff for pennies on the dollar.


James_Cole's picture

US debt to GDP >100%

Crow all you like but imagine the US if it got nailed with a more appropriate B, would be armageddon.

"Economic recession, high inflation, and growing external liquidity pressures will continue to erode the government's capacity to pay external obligations over the next two years," S&Psaid on Tuesday.

TeethVillage88s's picture

Like Rome the USA gets to say what it wants, go to war where it wants, and do what it wants including Global Systemic Fraud in Derivatives... due to Patronage & Loyalty from both the Petro Dollar, Central Bank Leadership, Treaties, Financial & Political Super Power Status, and from Military Super Power Status that allows us to keep Sea Routes open.

I'm thinking this is the Meaning of "New World Order".

But I haven't read all of the above...

PhilB's picture

You are also malinformed! Next time you post something and make a comment like that why dont you try and do some intelligent analysis of what you are saying. This Debt to GDP ratio is at the official rate of 6.3 VEF/USD !!! Why dont you try recalculating all that USD debt and Venezuela GDP converted at a much devalued exxhange rate like 50 VEF/USD or 150!!

Clever Name's picture

I see your point, but why does Venezuelas debt/gdp ratio depend on a relative valuation? Is the US debt/gdp ratio dependent on the exchange rate to...something else? Gold maybe?

PhilB's picture

WHen you fund yourself in another currency, like most emerging markets do, your debt/GDP ratio is highly dependent on the value of the local ccy/USD rate. As an example when calculating the Debt/GDP ratio in USD, the external debt of Venezuela is USD and very signiciant. So that doesnt change, but the value of its GDP does as its converted from Bolivars to USD. In the case sited above it shows at 50% Debt/GDP but using an exchange rate of 6.3 VEF/USD. But as 80 VEF/USD its already at 100% debt/GDP in USD. As you can see this gets worse as the country devalues more.

US Debt/GDP is not dependent in any significant percentage to any foreign currency or gold since it issues the great majority of its Debt in USD. Thats why it can print  money and not technically default for awhile. 


Clever Name's picture

It was a rhetorical question. I was trying to make the same point that JC posted below, but thank you for the response none the less.

One would think that a country such as Venezuela would be funded in oil (your 'another currency') - which at this moment is basically a $ figure but in practical terms (say to China) its anything but - making the $ price somewhat irrelevant. I know, fantasy land.

disabledvet's picture

Coal prices have collapsed in China. Why would they need oil?

James_Cole's picture

Why dont you try recalculating all that USD debt and Venezuela GDP converted at a much devalued exxhange rate like 50 VEF/USD or 150!!

Yeah and what if USD had a similar crisis?? You're talking a dollar shortage since maduro. My point was on the Debt/ GDP growth. If US got slapped with a B, try calculating that debt without petrodollar status..

Americans are so arrogant about this because they got the reserve currency, would be the same situation (or worse) if that changed.

PhilB's picture

Your point is invalid because it is not a simple Debt/GDP ratio you can compare between a country that finances mainly in a foreign currency and one that finances almost exclusively in its own currency. It is also the reason that the US wont get slapped with a B credit rating! If you fund yourself in the currency you control and that is internationally accepted (big importance!) then you can sustain much higher levels of debt/gdp ratios with much higher credit ratings compared to those who dont. Im not supporting US policeis but I am drawing a MAJOR disctinction between putting the US on par with Venezuela! 


James_Cole's picture

You seem to have reading comprehension skills, I'm saying outside of reserve dollar status for all the mockery at them pound for pound Venezuela has run better budgets. If they bowed down to the US their money troubles would disappear overnight.

Which country to bet on? King dollar OF COURSE.

That said if Maduro could run as epic a bond Ponzi scheme as the U.S. I'm sure they'd go spending crazy too.

disabledvet's picture

Venezuela will not be sending all their oil to China for refining such that it can then come back to Venezuela.

And gasoline in the USA will be under a buck a gallon very soon. The price of electricity on the other hand...

samcontrol's picture

under $1 a gallon !?

Want to bet the million i didn,t lose in SDRL yet ?

PhilB's picture

Sorry James, you simply are misinformed or wilfully ignorant. Venezuela is currently running abudget deficit of -11.5%, last year -8.5%. Venezuela is running a ponzi scheme and its in the process of blowing up. But please if you are so inclined, you can happily own venezuelan 10 year USD bonds at 20%!! Great deal right? Let me know when you put your money where your mouth is so I can laugh. 

Clever Name's picture

"pound for pound Venezuela has run better budgets"

What are you basing that on, that debt/gdp chart? While I'm not actually doubting you (how could it not be better run, really) I have to assume that their corruption is just as bad, no?


If they sold out to the US their money troubles would disappear overnight.



kaiserhoff's picture

With what combination of magical beans does a default take oil production off line?

Oil is always good collateral going forward, at some price.

Maybe the Communist regime should raise domestic gas prices..., from a nickel a gallon!

Ain't Soviet Central Planning grand?

Nick Jihad's picture

Venezualan oil is expensive to recover, and requires ongoing investment simply to maintain stable production. Venezualan output is already down significantly from its peak, due to underinvestment. Without access to capital, production will continue to decline.

InflammatoryResponse's picture

It is ALSO high sulfer and not a simple refining process.


the US had/has several refineries capable of handling it.  dunno about these days though.


FieldingMellish's picture

It would be funny if one of the unintended consequences of the US cold war on Russian oil prices was to drive Venezuela even deeper into the arms of the Chinese and the Russians. But then again, they are playing chess while the Administration is playing checkers.

walküre's picture

the pen is mightier than the sword

jiggerjuice's picture

So what ticker symbol would one use to short the worst of the worst of the Vene bonds? No sarc. 

kaiserhoff's picture

I don't trade bonds or off shore, but as a rule, there is no practical way for individuals to do that.

At best, you might be able to short a Vene bond fund.  Good luck.  Let us know if you find something useful.

Salah's picture

Quite possibly...great observation.  Otherise couldn't happen to a more deserving bunch of Cuban-inspired socialist assholes. 

Theta_Burn's picture

Time for a MADuro patriotic speech followed by unleashing the dipshits to loot the few remaining stores of the productive class.

That always bought a few mths...

Lights out meatballs...

sun tzu's picture

Those tinpot tyrants are so stupid. The Western tyrants know how to keep the ponzi going for over 100 years. The tinpot tyrants need to watch Wall Street to learn. 

NoTTD's picture

Yet, morons are lining up to loan them money.    The belief in sovereign gaurantees runs deep, (See Argentina, USA, Greece)

Yen Cross's picture

   Just wait until G-20 countries start getting smashed. Norway, Sweden, Finland, Australia, Brazil, England, Ireland, Spain, Italy, France ect... Countries that export CL or are tied to commodities and energy.

  Russia will do just fine, and China has it's tenticles in Africa and South America, along with Russia.

 I don't think cheap oil is to save Japan. Japan was a lost cause back in the late 80's when they refused to write off bad debt from the real estate crash.

 Cheap oil destroys far more than it potentially saves when you factor in all the hedges and derivitaves contracts globally. This is the petrodollar in it's death throws.

Philo Beddoe's picture


Where does Mexico get a shitload of tax revenue? Pemex.  Cheap oil will toss a lot of pieces of shit at the fan. 

Yen Cross's picture

 I forgot Mexico. You're absolutely correct. Philo Beddoe

 Additionally it is a "National Security" concern if starving people are pouring accross our borders.

kaiserhoff's picture

Doesn't Cuba still get greatly discounted oil from Venezuela?


Yen Cross's picture

  I don't know?

   The Castro brothers are still alive, so my guess is yes.

  Maybe the Cubans are trading boatloads of toilet paper for oil? 

  mi culo es que pica!


Yen Cross's picture

Está bien tengo rollo de repuesto    ;-)

Yen Cross's picture

 Gracias a mi amigo.
  puede usted tener unas maravillosas fiestas

samcontrol's picture


Horrible Spanish , what are you trying to say and i'll translate?

WillyGroper's picture

yes they do.

gasoline 17 cents per gallon in VZ.

Bottle of pine sol, can't be found/bought.



Philo Beddoe's picture

Who knew?  Interesting read...if one needs more proof that the family jewels are always for sale at the right price...high or low.