Venezuela This Week – SAT 17, 2016

100_bill
Associated Press

* December 11 to December 17, 2016. These are the Editor’s picks. Every week, Claudio Sandoval (@Claudiopedia) presents his selection of  Top News about Venezuela -comments included.

OVERVIEW

This week I cover the following matters (If you do not have time to read the whole edition, just go to the topic of your interest):

  • Venezuelan Oil & Gas Brief
  • Venezuela’s Maduro postpones currency move after chaos, protests
  • Tenaris wins case against Venezuela’s government

NEWS AND COMMENTS OF THE WEEK

  • Venezuelan Oil & Gas Brief

1. There is no doubt higher prices are giving investors incentives to reconsider frozen and new opportunities in the sector. For example, this non-OPEC cut agreement (558,000 barrels per day), reached last Saturday, helped establish record bullish positions among Hedge funds. In my opinion, the “gas” deal between Trinidad, Shell and Venezuela –mentioned in last week’s edition– is another example of this optimistic approach that Oil & Gas investors are taking on the industry. In this sense, Venezuela will not be able to lift its production and restructure PDVSA without massive foreign direct investments, which depend on stable prices above US$50 pb.

2. This week Venezuela’s oil basket price closed at US$45.13, gaining US$1.12. However, the market has not stabilized yet. In fact, it was a volatile week since “the dollar rallied near a 14-year high against a basket of other currencies the day after the Federal Reserve raised U.S. interest rates for the first time in a year” and U.S. crude oil production experience an increase.

3. PDVSA’s extra heavy crude output is diluted with other oil products to make it commercially attractive in terms of quality (API). This has involved the purchase of naphtha and foreign oil from Algeria, Russia, and Nigeria. When an oil producer and exporter is willing to undertake prepaid purchases in the secondary market, one can see there is something wrong. This is very telling about PDVSA’s weak position in the market. At this moment, Venezuela does not have the capabilities required to produce lighter crude oil that can be found in the states of Monagas, Anzoategui and Zulia. I tend to think traders are not giving PDVSA the best market prices. It would be interesting to know PDVSA’s current costs (for producing a barrel of oil) and its profit margin. This way, we would be able to fully assess the commercial acumen of those transactions.

4. While Mr. Tillerson appointment could be desirable in Moscow, this means bad news for Venezuela’s government. Under Chavismo ruling, the State nationalized ExxonMobil’s multi-million dollar Oil & Gas investments in Venezuela. The relationship is so bad that former PDVSA President (and current Venezuela’s representative to the United Nations), Rafael Ramirez has accused ExxonMobil of lobbying against him before US Criminal Justice authorities, as a result of those expropriations that happened during Ramirez’s tenure at PDVSA. If Mr. Tillerson gets to the State Department, he would likely support Guyana’s Land Dispute with Venezuela on the west bank of the Essequibo River, where ExxonMobil is undertaking oil explorations and some other investments. This time, there is a risk that political and military tensions escalate to the next level.

  • Venezuela’s Maduro postpones currency move after chaos, protests

5. My security sources told me that the army put some pressure on Friday and today morning, in an attempt to avoid a bloodshed amid projected escalate of violence and lootings. The country is descending into chaos as a direct consequence of Maduro’s decision to eliminate the Bs. 100 bill.

6. As it could be observed from the conversation I had with Venezuela’s analyst, Frank Muci, this was something we anticipated.

7. It is so evident that the most recent episode of popular insurrection was caused by the government that it had to step back. The government understood there was no point in blaming others for its mismanagement. Excuses would not save it from regime change anymore.

8. In the past (for example, #LaSalida in 2014), Military and Paramilitary forces -controlled by the ruling elite- repressed and killed Venezuelans in politically-oriented protests, organized by politicians and political activists. As a result, the government held the opposition responsible for those human rights violations, imprisoned dissidents and got out of troubles in the process. However, this week we are witnessing “spontaneous” social protests. Massive demonstrations without political directions or objective. It is rather the reaction of common citizens against socio-economic oppression.

9. This came with new circumstances, namely, (1) prominent political leaders like -Leopoldo Lopez or Henry Ramos Allup- are either in jail or involved in the so-called “Dialogue”; (2) President Maduro argued that this action was taken to fight the black market and prevent “the mafia” from using those Bs. 100 banknotes. As a consequence of this measure, the local currency recovered (from Bs. 4,500 for US$1 to Bs. 2,500) and millions of Bs. 100 bills could not be deposited by speculators. In other words, President Maduro was speechless, as he initially said that the (alleged) people behind “the economic war (politicians, DolarToday, and the Mafia)” had been neutralized by his measure.

10. With this move, Maduro himself was boosting his exit from the presidency, bypassing the current political arrangement he reached with the opposition. One of the ideas of the Dialogue was to pacify the country. Now, it looks like the people do not give a … about those talks. Otherwise they would not have revolt against the political leadership (from both sides, the Government and the Democratic Unity Roundtable). All this poses a new threat to the government’s stability in 2017…

11. It is likely that President Maduro will take populist actions to distract public opinion from main problems and try to gain some popular acceptance (For example, this week there was another Dakazo. The government seized 4 million toys from warehouses of Kreisel). I am not sure to what extent populism could save him when people is looting and getting products by themselves.

  • Tenaris wins case against Venezuela’s government

12. Since president Maduro is running out cash, he has been doing all kind of (bad?) deals and trying to sell Venezuela’s assets, including refineries abroad. There is a long line of creditors waiting for payments. It is going to be very difficult for Tenaris to collect.

By Claudio Sandoval, Venezuela Political Analyst and Commentator. You can follow him on Twitter, Facebook and the hashtag #claudiopedia

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