How Does Venezuela Spell Relief? Oil Prices Above $45
Venezuelan President Nicolas MaduroPHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES
The oil rally that has lifted U.S. crude prices above $45 a barrel is providing some relief to the cash-strapped Venezuelan government.
But analysts say oil prices at this level are probably not high enough to turn around its struggling economy.
Venezuela’s benchmark bonds due in 2027 gained 6% to 43.5 cents on the dollar on Thursday, as WTI crude prices rose 1.5% to settle at $46.03 a barrel. These bonds traded around 33 cents in mid-February.
Venezuela derives nearly all of its dollar revenues from oil exports. The precipitous decline in oil prices since mid-2014 left the country with a yawning budget deficit and in a financial bind from tens of billions of dollar-denominated debt.
The country narrowly avoided default on a $1.5 billion sovereign bond in February by draining its foreign reserves and squeezing imports for even daily necessities, like food and medicine. For the first quarter this year, Venezuela took in less than $250 million from oil sales, according to Latinvest.
Latinvest expects Venezuela to earn between $150 million and $200 million in April, thanks to the recent run-up in oil prices. But that still falls far short of the billions of debt obligations that it will be facing this year, analysts say.
Its heavy crude has high sulfur content, making it less desirable than crude exported by other producers. As a result, Venezuela has had to buy high-quality oil to blend with its own crude, reducing its oil revenues to just a fraction of the benchmark oil prices.
Venezuela’s oil production also has been declining, as foreign oil producers have been leaving the country after a series of power shortages and unpaid bills.
Forty-five dollars may be a functioning oil price for some of the more efficient oil producers like Saudi Arabia, “but not for Venezuela,” said Russ Dallen, managing partner at Latinvest. “The country is on the abyss of chaos; the worst is not over.”
A little more hopefully, he added, because of Venezuela’s rich oil reserves, “at some point, this will be a place to make money again,” he said