Venezuela’s shrinking oil exports and growing crisis
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Written By: Chris Tomlinson
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More than two years into the current collapse in oil prices, the Venezuelan government and the national oil company, PDVSA, is running out of the financial wherewithal to keep the country’s economy afloat. And while the loss of more than 350,000 barrels a day of Venezuelan oil hasn’t caused prices to spike, taking the remaining 2 million barrels a day off the market definitely would.
“Venezuela has become a supply risk for oil markets, not only because of the multiple operational challenges facing it, from a crippling electricity crisis to malfunction at its oil export terminals and refineries, but most importantly because of the spiraling impact of the steep oil production declines already suffered this year,” writes Luisa Palacios, for Columbia University’s Center on Global Energy Policy.
The sudden drop in oil prices in 2014 triggered a revenue crisis for the socialist government, forcing it to slash the social spending that kept it popular. But since the government also leveraged PDVSA, and it’s subsidiaries, the loss of revenue has triggered a credit crisis for the oil company, making it difficult to conduct financial transactions.
Venezuela’s Central Bank has sold 100 metric tons of gold reserves for hard currency, but those funds went to the government. PDVSA has slashed payments to the government and its contractors in order to meet bond obligations, because the President Nicolas Maduro is desperately trying to avoid defaulting on its international obligations until after an election scheduled for early next year.
Net cash flow, though, is negative. About 15 percent of Venezuela’s oil production is going to China to pay back $65 billion the government has already spent. Then there is the small problem that in order to export the heavy oil found in Venezuela, the country has to import light oil to create a blend. Global oil companies are now demanding payment for the light oil in advance, according to industry publications.
“PDVSA’s cash fow cannot cope with all these external obligations, which is why arrears are mounting,” Palacios wrote.
So it might not be the civil unrest created by millions of hungry people, or the unpredictable electric grid, that will shutdown Venezuelan oil exports. The international financial system cutting the flow of cash to Venezuela will do it.
The only way to avoid a complete meltdown of Venezuela’s economy, and it’s oil exports, is a negotiated deal involving opposition politicians and the International Monetary Fund. But Nicola Maduro’s government remains defiant, and continues to jail opposition leaders.
The crisis in Venezuela continues to build, and it will have repercussions in the United States.