Are They Or Aren't They?
When most people think of the oil business in Venezuela they tend to think about Venezuela having the largest proven oil reserves in the world and don’t look much beyond that. Capital.com had a piece that exposed some of the realities of the oil business in Venezuela today.
In a potentially ominous development for the Venezuela oil business today, PDVSA (government-owned oil company) began switching most oil sales to prepayment after several recent defaults. So, what is the state of Venezuela oil exports? Oil storage tanks are near full capacity and loaded vessels awaiting authorization to set sail due to the prepayment requirement have doubled.
Venezuela crude, already heavily discounted due to its extra-heavy nature, as well as quality issues, now sells at a $47 per barrel discount and intermediaries are charging almost 8% for switching to prepayment.
Most of the reputable companies that PDVSA had as reliable business partners have been replaced by little-known firms, hence the prepayment requirement.
PDVSA’s tanker fleet is decrepit and has shrunk to only 14 vessels (only one VLCC , very large crude carrier or ‘supertanker’, after losing three to debt disputes) most of which aren’t allowed in foreign ports due to lack of maintenance so they pay shipping companies to transport their oil and often have to pay for expensive ‘ship to ship’ transfers to avoid sanctions.
We have discussed before that most of Venezuela’s current oil production is already spoken for between shipments to Russia (oil for arms deals), China (oil for loans deals), and Cuba (oil for security and medical personnel deals), as well as domestic needs, all for which they get no revenue. The recent announcement that Eni (Italy) and Repsol (Spain) will be allowed to ship oil from Venezuela to Europe in return for debt is more oil production to be exported without revenue.
The small amount of capacity left-over must be sold at such discounted prices and with such high expenses it’s hard to see how they can make any money. It begs the question, “Is Venezuela,for all intents and purposes, out of the oil business? Are they or aren’t they?”
Next up we have FEE reporting that Chile, long regarded as a model capitalist country in South America, elected a socialist as president last year and some worry they may go the way of Venezuela.
It’s worth remembering that Hugo Chavez declared before he was elected that he was, under no circumstances, planning to nationalize companies. After he was elected I stopped counting when the number of companies nationalized went over the 1,300 mark. FYI, over the same time frame Ecuador, also a socialist country, nationalized 100 companies. The Chavistas clearly went off the rails.
With these guys you just never know which way they’ll go after they’re in power. Many Chileans voted for the socialist, Boric (Chile’s President), not really for him but against his opponent. It’s kinda like the Joe Biden voters in the last US presidential election. They didn’t really vote for Biden but against Trump. We can only hope Chile makes out better that the US did…or Venezuela.
Then we have some positive news coming from Latam List. They report that Venezuela delivery start-up “Yummy” is going places. It raised $4 million in capital a year ago and this round raised $47 million! It has grown from 200,000 users to over 2 and 1/2 million and now operates in four countries. There is so little “real” good news out of Venezuela, Chavista propaganda notwithstanding, we love this story!
And on the oil transportation front we have Lloyd’s List reporting that tankers are switching from shipping Venezuela and Iran crude to transporting Russian oil products and it’s ready-developed sanction-skirting template.
Then we have Alarabiya News keeping tabs on Nicolas Maduro’s itinerary. He’s going from Turkey to Algeria and on to Tehran. Maduro takes these trips a couple of times a year to try to drum up investors in Venezuela and wherever possible to beg for money, although the number of people willing to outright lend money to the Chavistas these days is pretty much non-existent.
And we have the Daily Sabah reporting that while Nico was in Turkey, Turkish President Erdogan said Turkey hopes to boost trade volume with Venezuela from $850 million to $3 billion. There was no actual deal on anything, as usual, after Maduro’s visit. (They love to play up “strategic agreements” or “agreed in principle” deals)
Then we have AP reporting that Venezuelans make up a large portion of the current migrant caravan making it’s way north to the southern border of the US.
And in a related piece we have the IOM (International Organization for Migration) saying that Venezuelan migration to Uruguay is up 31% from November,2021 to May,2022. With a population of only 3 and 1/2 million there are now 20,400 Venezuelan migrants. An increase is expected as Uruguay has an economy that has already recovered from the pandemic and, as we’ve previously covered, Venezuelan migrants are running out of places to go and the outflow of people fleeing 21st Century Bolivarian Socialism continues.
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