Showing Their Hand

 We’ll be starting this week’s Venezuela : Down The Rabbit Hole segment, “Free Gas”, shortly but first a little current news… Reuters reports that as of November 23rd Chevron, who can now export crude to the US in return for debt repayment with PDVSA (Venezuela government-owned oil company), had almost 1.8 million barrels of exportable crude in stock (most Venezuela crude oil isn’t exportable until processed) and could begin shipping crude to the US as early as this month….BUT, according to company executives, PDVSA isn’t happy with the terms, they’re looking for cash… Told ya!

 Quick reminder, PDVSA had the same sanctions relief deal to export crude to Europe, debt repayment only, no cash and after the initial shipments for Eni (Italy) and Repsol (Spain) they backed out of the deal demanding cash payment for all future shipments. This caused a four month pause in shipments that recently resumed but neither the Europeans nor PDVSA will say if cash is involved, which would be a sanctions violation since the relief agreement specifically called for no cash. Shouldn’t the Biden administration be demanding some answers here? Or maybe they just don’t want to know because if they’re violating the agreement what does that say about the latest agreement, which is the same deal? At least the Chavistas are showing their hand on the new deal early. They have no interest in repaying their debt (on this deal or with anybody else).

 This brings us to another headwind for exporting Venezuela crude to the US. There is another company owed money by PDVSA Actually there are a lot of them), to the tune of over $1 billion, and it says it expects similar consideration as the Chevron deal.

 Then you have something nobody’s talking about, although Reuters did mention it in this piece, and that’s the possibility of asset seizure. Conoco Phillips, who already has a judgement of $1.2 billion against Venezuela, has said it would pursue it’s claims anywhere in the world. Well, if anywhere in the world includes Houston we could have a problem.

 And we have the Jamaica Gleaner telling us that in light of the Biden administration’s relaxed Venezuela policy Jamaica should, according to an editorial in the Gleaner, begin talks at the ambassador level to restore, if not “normalize”, relations with the Maduro regime. The Jamaica Embassy in Caracas has been closed since 2019 when Jamaica recognized (along with 50 other countries) Juan Guaido as the legitimate President of Venezuela and it’s nationalization of Venezuela’s 49% stake in Jamaica’s Petrojam oil refinery.

 There won’t be a return to the “good old days” of Petro Caribe, a Chavista- sponsored program whereby member countries received regular crude oil shipments from Venezuela at preferential prices with low down payments and 1% financing for up to 20 years (Maduro says he wants to restart the program but he has no spare production capacity and no money) but if Venezuela is able to boost it’s oil production (a big “if”) and sanctions allow them to export oil then Jamaica doesn’t want to be left behind.

 Then we have Law 360 reporting that former Venezuela Treasurer, Claudia Diaz Guillen, testified in Florida Federal Court that she and her husband got rich taking bribes for allowing arbitrage using Venezuela’s currency exchange system.

 We have previously detailed the arbitrage process, which was just a few simple steps using preferential exchange rates, that was responsible for creating many millionaires and billionaires in Venezuela from 2008 – 2017.

 Ms Diaz was paid over $65 million in bribes from Venezuelan businessman, Raul Gorrin, who is still in Venezuela. She is also under investigation and facing charges in Spain, who gave the “green light” for her extradition to the US in 2021.

 And we have Yandex News telling us that Russian authorities have invited Nicolas Maduro to visit the Kremlin before the end of the year. It seems they’re not happy with the game he’s playing with the US (like the recent oil deal with the Biden administration) behind the backs of his friends from Moscow.

 Then we have the Latin America Risk Report giving us two views on Venezuela oil production going forward…

 Optimistic view : Venezuela could reach oil production of 1.7 million bpd (barrels per day) by the end of 2023, if everything goes perfectly. (Maduro predicted production of 2 million bpd by the end of 2022 and the last few months has averaged about 625,000 bpd)

 Pessimistic view : Venezuela won’t produce more than 1.1 million bpd by the end of 2023 even if everything goes perfectly, and it won’t!

 Both sides agree that maximum capacity over the next four years is two million bpd.

 Now let’s head Down The Rabbit Hole…

 Chapter 8/ Free Gas…

 As an investor I always thought it was important to own some stock in a major integrated oil company. I call it my “oil insurance” (a term I stole from Dan Ferris). Sometimes it’s a better investment than others but it’s kinda’ like owning gold. I sleep better knowing I have it. Since a large percentage of the world’s oil passes through the Strait of Hormuz, which is controlled by those lunatic Iranians (Maduro’s new BFFs), they can cause the strait to be closed and the price of oil could skyrocket overnight. As such, I’ve followed the oil market for years. I thought I knew a little bit about it until I moved to Venezuela.

 We already dealt with the macro situation ie; PDVSA. This is about the micro situation, the lunacy of free gasoline and why it stayed free in Venezuela for so long, and yes, I said FREE, not cheap, free. When I would be in the US and tell people I was from Venezuela they would always mention either beauty queens or cheap gas. When I would tell them there are probably more beautiful women per capita in Venezuela than anywhere they were never surprised. When I would tell them that gas wasn’t cheap…it was free…there response was always the same, “Come on…it can’t be free…can it?” Well I don’t know about you but I consider one tenthousandth (my spell check says tenthousandth isn’t a word) of a cent per liter free gas.

 Gasoline wasn’t always free in Venezuela but it was always exceptionally cheap. Politically it always made sense to mollify the population with cheap gas. Cars might be expensive but if you had one you never had to concern yourself with paying for gas. The price stayed constant for years until 2016. Maduro was already a de facto dictator so he didn’t concern himself with the political consequences of a gasoline price hike. In one shot he bumped up the price of 91 octane by 3,000% and 95 octane (we don’t even have 95 in the US) by 6,000 % .

 Sounds like a big deal until you do the math. Let’s use 95 octane for example.Remember, in 2016 Venezuela was using bsf (the strong bolivar) for their local currency, not the new bolivar, or the sovereign bolivar, and certainly not the plain old bolivar from pre- Chavismo times. (that was 14 zeros ago in devaluation terms) Confusing isn’t it? Anyway…here’s how it breaks down :

 One liter of 95 octane – 6 bsf

 Approximately 55 liters per tankful in the trusty old Totota

 Exchange rate at the time was about 1,200 bsf/dollar

 So you can see, even with the big bump, I could still fill up my tank for a quarter! And that was when it was expensive. Maduro’s economic mismanagement would eventually make the price of a liter in dollar terms $0.000001 (6 bsf per liter with the exchange rate of the bSs, the “sovereign bolivar”, the one that lopped off 5 zeros from the bsf, at 6,000 bSs/ dollar). To leave the subsidized price so low must cost a fortune…right? Yes it does.

 More tomorrow….

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