Stacking PDVSA with military officials may help President Maduro avert unrest in the short run, but it will likely accelerate the deterioration of the state oil company.
The risks of more oil production losses have intensified as the financial screws on Caracas continue to tighten. Deteriorating conditions in Venezuela are occurring at the same time OPEC is looking to extend its production cut and tensions throughout the Middle East are rising.
There’s little question the global market will lose more production from Venezuela in the coming months and years. The country's crude output is at risk of falling to as low as 1.2 million barrels per day.
The U.S. government stopped short of a ban on oil imports from Venezuela, hoping to insulate U.S. refiners. But in the short run, Venezuela will have difficulty moving volumes to the Gulf Coast since the region has been swamped by Hurricane Harvey.
Venezuela has fallen apart as a result of corruption and ineptitude, but even more so because of its over-reliance on oil as a revenue source. Some 95 percent of the country’s export revenue comes from oil.
The possibility that Russia may soon own refineries in the U.S. if Venezuela’s PDVSA defaults on its loans from Rosneft has pushed the risks of foreign-owned energy assets in the U.S. into the spotlight. As of now, some 30 percent of U.S. refining capacity is owned by foreign companies.
The economic calamity in Venezuela is having a ripple effect on the oil market, altering long-standing trade flows and hollowing out the country’s oil-producing assets.
Venezuela’s opposition called for nationwide protest today as the National Electoral Council (CNE) missed yesterday’s deadline to verify signatures provided by the opposition Democratic Unity Roundtable (MUD) and announce whether it could move forward with a recall push against embattled president Nicolás Maduro.
While headlines about Venezuela nearing a default have appeared for more than a year now, market sentiment regarding Venezuela’s ability to weather the oil price downturn has taken a turn for the worse as of late.