Oil Quality Issues Could Bankrupt Venezuela

Tyler Durden's picture

Authored by Nick Cunningham via OilPrice.com,

The next few weeks for Venezuela will be crucial, as it could struggle to meet a huge stack of debt payments. Reports that the nation’s oil production is experiencing deteriorating quality raises a new cause for concern for the crumbling South American nation.

Venezuela’s state-owned oil company PDVSA is reportedly shipping crude oil with growing quality issues. Reuters reported that its oil shipments are “soiled with high levels of water, salt or metals that can cause problems for refineries”. It’s a troubling situation for an oil company already suffering from a steep drop in output.

The quality problem is very much related to the country’s economic crisis. Without cash, PDVSA is struggling to obtain the proper chemicals to treat its oil, or pay for equipment and upkeep to maintain quality. As a result, PDVSA has had to shut down operations, or throttle back on production. “We’re refitting chemical injection points, recouping pumps and storage tanks,” one PDVSA worker told Reuters. “But without chemicals, we can’t do anything.”

The oil company has been shipping crude that is apparently causing problems for refiners around the world. According to Reuters, that has led to complaints and even cancellations of purchases. Phillips 66, a U.S. refiner, cancelled at least eight cargoes in the first half of the year due to inferior quality. It also demanded discounts for other shipments. Refiners in India and China have also lodged complaints.

The sales cancellation poses a serious financial threat to a company and country already wallowing in a horrific economic crisis. For example, the cancelled shipments were carrying oil representing $200 million in value, according to Reuters estimates. PDVSA is the only lifeline for the Venezuelan state, so reports that the one source of revenue keeping the country somewhat afloat is not only declining but is now exhibiting declining quality is alarming.

Output is falling, cash is drying up and oil workers have fled the country because of food shortages and violence.

The problem for PDVSA is compounded by the fact that a few months ago the Trump administration slapped sanctions on new financial arrangements with the oil company, prohibiting PDVSA from engaging with U.S. banks to restructure debt. The measures also add a new level of red tape for U.S. refiners who do business with PDVSA. Because of the new pressure from Washington, refiners are starting to look elsewhere for their crude. PBF Energy, the fifth largest U.S. refiner and regular PDVSA customer, has reportedly halted direct purchases from the Venezuelan oil company.

Deteriorating quality, falling production and U.S. sanctions have led to a sharp decline in shipments from Venezuela to the U.S. refiners. For much of this year, weekly U.S. imports of Venezuelan oil bounced around between 600,000 and 800,000 bpd, sometimes going even higher. But trading volumes began to plummet about a month ago. For the week ending on October 13, U.S. purchases of Venezuelan oil dropped to just 255,000 bpd, the lowest weekly total in EIA data stretching back to 2010.

(Click to enlarge)

The timing of this could not be worse: Venezuela has some painful debt payments due in the next few weeks. The government is undoubtedly scrambling to find a solution. President Nicolas Maduro said in early October that debt to Russia’s Rosneft might need to be restructured. Last year, the government engineered a restructuring plan with creditors to avoid default, stretching out payments over the next few years.

Earlier this month, however, Venezuela missed several payments totaling $349 million. There is a 30-day grace period before the country is technically in default, and payment delays have grown increasingly common in the past year or so. To date, against all odds, Venezuela has not defaulted.

But a bigger test comes in about a week: between October 27 and November 2, Venezuela has to make a whopping $2 billion in payments to bondholders, and there’s a lot of uncertainty around whether or not it can make those payments. And over the next three weeks, Venezuela and PDVSA owe a combined $4.4 billion. Analysts believe the central bank has a little over $9 billion in reserves, but much of that is in illiquid assets like gold.

“It seems they’re saving every penny for these two big payments,” Russ Dallen, managing partner at Caracas Capital, told the WSJ.

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VD's picture

moar buttttcoinz!

toady's picture

Aren't they already bankrupt?

VD's picture

whatever comes after bankrupt, with a little cannibalism thrown in for good measure.

strannick's picture

Quality control issues

The Deep States' soft policy in action..while saving a few of their missles.

Richard Chesler's picture

The quality problem is very much related to inept negroes and mulatos running the operation.

FIFYMF

Stuck on Zero's picture

Socialism: where the quality of everything decays to zero.

strannick's picture

Yup. Everyones equally broke. Cept for the Party

you_are_cleared_hot's picture

For those in the North East, Joe Kennedy used to make commercials about how much of a saint he was for partnering with "the good people of Venezuela" to bring us discounted home heating oil...for those who had trouble paying their oil heating bills.

So Joe, how is Citizen's Energy doing these days? I take it Venezuela is too poor to give you campaign "contributions"??

LawsofPhysics's picture

No worries, the U.S.S.A. will step in to help liberate these poor people from their oil...

"Full Faith and Credit"

Snaffew's picture

all part of the plan to neutralize venezuela's only means of production and to take over their one major natural resource.  Once American control is in place, the "scientists" will all of a sudden "discover" the purest and largest natural deposit of oil anywhere in the world right here in good ol' venezuela.  To repeal and replace Puerto Rico, the US goes for the gold---err Vennie oil, that is.

Bonaparte's picture

So India and China are colluding with the US to wreck Venesuela?  You need to adjust your tinfoil hat reception. It has picked up bs .

07564111's picture

Maybe you could show us those _official_ Chinese and Indian complaints ?

anomalous's picture

The "scientist" and pretty much everyone else have known the size of their oil reserves for decades.

Snaffew's picture

surely, but for now, they are discrediting what seems to be common knowledge.

Bwana's picture

Venezuela's oil has always had vanadium in it. Mobil many years ago developed and patented a process to remove the vanadium prior to cracking the oil. If it is not removed the vanadium covers the anodes and cathodes and cracking stops until the anodes and cathodes are replaced. Unless the refinery has been equipped with the pre-refining Mobile "M" process they cannot take the oil from Venezuela.

E.F. Mutton's picture

Just a few bugs in the Brawndo Injection Wells

Frito's picture

It's got electrolytes! 

Chris88's picture

This must somehow be the fault of the US, it can't be socialism doing what it always does.

Chris88's picture

Once someone answers the above question I'll accept it wasn't entirely socialism's fault.

GooseShtepping Moron's picture

Petro-Socialism would have worked out pretty well for Venezuela if the country had been 90% White. This is more a case of Latrinos being Latrinos.

Chris88's picture

Sure just explain how economic calculation occurs with no market for capital goods.

GooseShtepping Moron's picture

Markets can determine prices without needing to exist at all levels simultaneously. A free market that existed between major industries and trade partners would be enough to set input prices rationally. That would be enough to determine how much wealth you have at your disposal. If a nation wanted to redistribute some of that wealth in order to maximize social goods, that alone would not create a calculation catastrophe and would arguably make for a healthier, more prosperous society overall.

Redistribution of wealth is beneficial within a certain range, and that range is determined by what kind of society you have to begin with. It depends on  multitude of social and cultural factors, many of them not even economic. Redistribution outside the range is harmful to society, and redistribution plus debt is especially toxic.

Chris88's picture

Did not even remotely answer the question, just said "it's possible".  Let's look at how that works absent a market.  USSR - record output of steel and concrete while tens of millions starved to death as tractors rusted in fields.  That's not a matter of not having enough to redistribute, that's a matter of having no price signals to tell where resources should be allocated.  No pricing of capital goods means no way to know profit/loss which means it is laughable to try to allocate capital.

LawsofPhysics's picture

True socialism (The people own/control ALL productive capacity and resources)  and true capitalism (NO FUCKING BAILOUTS)  have never existed, ever if at all.

Fascism/corporatism everywhere...

"Full Faith and Credit"

Chris88's picture

Fascism fails for the same reason socialism does - same thing, just differs in degrees.

LawsofPhysics's picture

So you are okay with bailouts then? Guess what you stupid fuck, same reason why capitalism fails!!!

LMFAO!!!

Good luck with that cognative disonance and thanks for the laugh!!!

 

Chris88's picture

Please tell me when I ever said I was ok with bailouts.  Thanks in advance for proving you're not making things up.

LawsofPhysics's picture

So you agree then, we have NOT had "capitalism" either, and we have in fact had BAILOUTS leading to fascism/corporatism in America.

Can't have it both ways...

Glad we agree then.

 

Chris88's picture

I never disagreed with that statement, I said that fascism only differs from socialism in degree, not foundational principle, and thus fails for the same reason (interference in pricing and thus impossible resource allocation).  Is that something you disagree with?

Justin Case's picture

Collectivism a growing concern in the EU, US, UK, Canada.

Collectivism will always eventually destroy the economy of any nation, no matter how great it may be.

Current example - Venezuela

Whenever the standard of living for the majority of citizens drops significantly in a jurisdiction, the voters will be ripe for empty promises. In every such case, collectivism will appear to be the best solution.

Collectivism is by its very nature is a parasitical system that creates nothing. It therefore will always eventually destroy the economy of any nation where it is implemented, no matter how great that nation may be. The only uncertainty is the number of years required for destruction.

Today, we’re witnessing the collapse of the primary jurisdictions of the former “free” world. They’re operating on a quasi-capitalist system that has been eroded by repeated injections of collectivism (primarily socialism and fascism). Increasingly, voters in each of these jurisdictions are becoming convinced that the promises made by collectivist candidates “just make sense.” As the system continues to spiral downward, as it inevitably will, the scales are likely to tip, not in the direction of a return to the free market, but in the direction of full-on collectivism.

Justin Case's picture

Norway has over $1 trillion in their sovereign wealth fund and is doing fine. US imposed illeagal sanctions on Venezuela which is the root cause of the economic turmoil. They did that without merit. Hugo pissed off the merican oil companies when he nationalized oil, just like Saddam. Manduro needs to look at diversifying the economy and be less reliant on oil. If countries put sanctions on Saudi Aradia, there would also be an economic collapse in that country. Socialist merica has funding from vassel states that buy their debt, but that too is going to end as the amount required to fund the mismanaged country grows exponentially.

China is currently ranked #1 socialist country and Canada is #6.

#1 Socialist state in merica.
Expenditures as Proportion of GDP: 35.1%
West Virginia is the most socialist state in America. Its current governor is Earl Ray Tomblin, a Democrat. Major industries in West Virginia include energy (coal, natural gas and wind farms), chemicals, biotech and aerospace, among other industries.

Interfering with sanctions is the root cause of most economic collapses, most vunerable are the countries that are not divercified. Put sanctions on Saudi oil and see how many days it will be before the collapse. 

 

A combination of corruption and external sabotage by opposition forces (with foreign support) has crippled the economy. Mismanagement has been widespread and destructive. US agencies and their allies in Venezuela have seized the opportunity to further destabilize and destroy all remaining remnants of chavismo. Now they are trying to tarnish and erase Chavez’s legacy, but I believe this is an impossible task. Even if the current government doesn’t survive the vicious attacks against it, Chavez’s memory in the millions of people he impacted and improved the lives of, will weather the storm. “Chavismo” has become an ideology founded on principles of social justice and human dignity. But do people miss him terribly? Yes.

Chris88's picture

You're comparing Norway and Venezuela?  That's beyond a stretch.  China is a socialist country - with lower taxes and regulations than most of the Western world.  Try independent thinking, it's amazing.

Justin Case's picture

Below, you will see some of the most socialistic nations in the world today:

  • China
  • Denmark
  • Finland
  • Netherlands
  • Canada
  • Sweden
  • Norway
  • Ireland
  • New Zealand
  • Belgium
Chris88's picture

Starts the list with a country with fewer regulations and lower taxes than the majority of the Western world.  Independent thought is beautiful, try it out sometime.

Justin Case's picture

comparing Norway and Venezuela, ya, two socialist countries. You prefer China and Venezuela? Take yoar pick.

I can tell yoar allergic to that word, of which you know very little about. Like the ignorant callin China communist. How many muti-millionares did communist countries create in the past? These commies are buying up California and Vancouver. The commies are takin over, run for the hills, they have a disease, communism, run for yoar life.

Chris88's picture

This is the problem when somebody is an inept clown who couldn't run a hot dog cart but has a retarded and baseless opinion on economics.  I hope English is your 5th language.

Justin Case's picture

An opinion should be the result of thought, not a substitute for it. Some drink at the fountain of knowledge ,other's just gargle.

venturen's picture

define socialism....because Netherlands and the Scandinavian countries are capitalist on many levels. Scandinavia reformed their out of control socialism as it was bankrupting them.  China is not socialist at all...it is a oligopolies...where the top party leaders grab the money of the top capitalist.

Let me the know the control without a stock market. Stock Market is the definition of NON-socialist.

petroglyph's picture

Do you hold any actual stock? Or is it all held at the DTCC? If you don't hold it, you don't own it.

Justin Case's picture

“Is China Socialist?” can reasonably be asked and left open. Sixty years ago, everyone knew that Mao was leading a socialist China; twenty years ago, everyone thought that political leaders like Jiang Zemin and Zhu Rongji were leading China away from socialism. China today clearly fulfills two criteria: the government has the capacity and intention to shape economic outcomes. On other criteria—redistribution and responsiveness—China scores less highly than on the first two. The objective of China’s state intervention has clearly shifted from growth at any price to a more complex set of goals that includes redistribution and social and economic security. China under its current President (and General Secretary of the Communist Party) Xi Jinping is moving toward a more explicit embrace of socialism and a stronger commitment to socialist goals, as exemplified by the ambitious five-year-plan target of eliminating absolute poverty by 2020. Thus, it seems broadly fair to view China  as  moving  towards a version of “socialism,” albeit a very particular flavor of socialism that is authoritarian and top-down, but with a market economy based primarily on private ownership.

Xi  seems  to  favor  an  effort  to  make  the  system  more  socialist, by stressing collective goals and top-down direction. Thus, even those who judge that the Chinese  system  today  is  not  socialist  might  consider  that  the  socialist  ideal  is  still influential, and the system may continue to evolve in the direction of stronger “socialist” and redistributive institutions. As that happens, the mix of attributes will change, and a “Chinese model” of socialism may begin to emerge.

There you go kiddies

Benjamin123's picture

Venezuela is not socialist. It is as capitalist as Norway but extremely corrupt.

GunnerySgtHartman's picture

West Virginia is the most socialist state in America. Its current governor is Earl Ray Tomblin, a Democrat.

I don't know where you are getting this shit, but it is factually incorrect.  Tomblin has been out of office since January, and you need to define "most socialist state in America."  I'd argue that the blue-blood Northeastern states and Kalifornia/Oregon/Washington are far more socialist.

Justin Case's picture

If socialism is social welfare (or vice versa), then what country is not socialist? Do you need a certain measurable degree of social welfare to be socialist? Is it the type of social welfare that defines socialism? Is it the decline in infant mortality from 1949 onwards that defines the Chinese social structure as socialist? Is it the family planning policies? Is it the increase in caloric intake of the poor? Is it the extensive development of infrastructure during the Maoist era? Where is the recipe book for this definition of socialism? And what is to stop us from labeling every OECD country, including the U.S.A., as socialist, using similar criteria? I think the problem is that socialism means too many things and sometimes nothing at all, depending on who is using it. It certainly doesn’t seem to have anything to do with class processes for most of those who deploy the word in their arguments.

petroglyph's picture

What if we define socialism as what country's citizens owe the most per capita to their retired government "workers" pensions? Local, state and federal? Including current and future social security and medical?

Justin Case's picture

You'll break a lot of hearts when you define it that way. In Canada the retired debt slave will get max about $15,500.00/yr. on pension. That's if you maxed out paying in for 42 yrs like me. That yearly amount we recieve, is what members of Parliament recieve monthly for minimum 5 yrs service. Debt serfs can't get a dime until atleast 60 and that will gross you $600.00/mth.

That is socialism at it's finest.

Arnold's picture

We did furnish a lot of the lite to cut their mud , to make flow into the tankers for transport.
Now, evidently they are shipping real mud.
If it simply bacterial growth clogging the filters, we gotta fix for that.
If somewhere they are picking up clay and soil, as I read somewhere, they got some broken casings and big trouble in little China.