Po­ten­tial US oil sanc­tions boost risk of Venezuela de­fault

Muscat Daily - - BUSINESS -

Hous­ton, US - The spec­tre of tighter US sanc­tions is push­ing up the per­cep­tion that Venezuela is get­ting closer to de­fault­ing on its bonds.

Venezuela is await­ing pos­si­ble fur­ther re­stric­tions after the US, its largest trad­ing part­ner, sanc­tioned Pres­i­dent Ni­co­las Maduro after he held elec­tions on Sun­day for a new assem­bly that will re­write the con­sti­tu­tion. US Trea­sury Sec­re­tary Steven Mnuchin said in an­nounc­ing the mea­sures, in­clud­ing freez­ing Maduro’s as­sets in the US, that ad­di­tional sanc­tions were ‘on the table’.

The im­plied prob­a­bil­ity of Venezuela miss­ing a pay­ment over the next 12 months rose to 62 per cent on Mon­day, ac­cord­ing to credit-de­fault swaps data com­piled by Bloomberg. That’s the high­est level since March 2016. The odds of a credit event over the next five years in­creased to 95 per cent. Venezue­lan sta­te­owned oil and nat­u­ral gas com­pany, Petroleos de Venezuela SA’s (PDVSA) dol­lar bonds due in Novem­ber ex­tended losses after the an­nounce­ment and are trad­ing at only 74.33 cents on the dol­lar.

Fur­ther sanc­tions ‘would in­crease the prob­a­bil­ity of de­fault given PDVSA’s al­ready dire liq­uid­ity sit­u­a­tion and be­cause it would give Maduro a po­ten­tial scape­goat to blame for the gov­ern­ment’s in­abil­ity to pay’, said Risa Grais-Tar­gow, a se­nior analyst at Eura­sia Group in Wash­ing­ton.

“If the US bans ex­ports of crude and prod­ucts, it would have a mild im­pact on PDVSA, as their im­port costs would go up on in­creased trans­porta­tion costs as they source lighter crudes and prod­ucts from far­ther afield.”

Venezuela has in­creased im­ports of oil and prod­ucts from the US in re­cent years amid low oil prices and lack of main­te­nance at its re­finer­ies. Oil out­put fell to a 14-year low of 1.97mn bar­rels daily in June, ac­cord­ing to data com­piled by Bloomberg. PDVSA’s re­finer­ies were op­er­at­ing at 43 per cent of their ca­pac­ity in June amid lack of oil and equip­ment break­downs, ac­cord­ing to Bloomberg cal­cu­la­tions based on data from a per­son fa­mil­iar with op­er­a­tions.

The US is a net im­porter of Venezue­lan crude, bring­ing in 741,000 bar­rels a day in 2016, ac­cord­ing to data from the US En­ergy In­for­ma­tion Ad­min­is­tra­tion. It ex­ported 105,000 bar­rels a day of crude and fuel in the same pe­riod to Venezuela and Cu­ra­cao, where PDVSA’s 335,000 bar­rel a day Isla re­fin­ery is lo­cated.

PDVSA buys US oil for the Isla re­fin­ery to make up for falling do­mes­tic out­put of lighter, or lower-den­sity, grades of crude oil, said Andy Lipow, pres­i­dent of con­sul­tant Lipow Oil As­so­ciates LLC in Hous­ton. If Venezuela can’t buy from the US, it will need to pay up to get sup­plies from other coun­tries.

“If Venezuela is able to find sup­pli­ers will­ing to ex­tend credit to them, they will cer­tainly need to pay more for those sup­plies,” he said in a tele­phone in­ter­view.


Em­ploy­ees work at a Petroleos de Venezuela SA (PDVSA) gas sta­tion in Caracas, Venezuela on March 23

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