Join the conversation:

Urgent action in Venezuela before sustained fall in oil prices

Urgent action in Venezuela before sustained fall in oil prices

Posted by Dubraswka Aguilar on October 16, 2014

The sharp drop in oil prices is pushing the government of Nicolás Maduro to take necessary measures, but unpopular; to straighten a economy would be into recession.

The price of a barrel of oil, the source of nine out of each 10 dollars entering the Venezuelan economy, has fallen dramatically in recent months at least since 2010 and it appears to remain at those levels next year.

"If the government does not make adjustments, any annual price below $ 90 a barrel will be a problem," told Reuters Benjamin Ramsey, JP Morgan analyst for Latin America, referring to the average price of the Venezuelan basket for this year , reaching $ 94.99 per barrel (dpb).

High inflation, shortages of commodities and a weak economic performance with millionaires payments due bond maturities and international arbitrations, have pushed Venezuelan finances, forcing the political heir of the late Hugo Chavez to seek oxygen.

But Maduro, has delayed the implementation of a series of proposed price increases as the world's cheapest petrol, the selling a complex refineries in the United States and a foreign exchange unification settings. In early September, Maduro dismissed as financial vice-president Rafael Ramírez, slowing, analysts say, the measures that the former president of the state oil company PDVSA announced. In its place he put the military Rodolfo Marco, who has not announced any new plan.

"The decisions come slowly," a source at state oil industry, after commenting that the Government continued studying the economic measures proposed by Ramirez.


Although the measures would give oxygen to President Maduro, are also a threat to its popularity, which is 35 percent according to a recent poll Datanalisis before a vital parliamentary elections in 2015.

"The government has less and less room to maneuver," said Diego Moya-Ocampos, an analyst at IHS. According to his calculations, the Government may suffer "serious hardship" to meet the dozen social programs, support of his popularity, if the price of the local basket falls below $ 80 a barrel for three months. Last week closed at $ 82.72, its lowest level in nearly four years.

Maintained that scenario for a year, according to projections by the firm Financial Summary, revenues from sales of crude oil Venezuela would be reduced by 12,000 million, similar to what costs the nation OPEC figure each year, the subsidy to fuels.

But the fall of crude oil was not on the government's plans. In fact, Ramirez, now chancellor of Venezuela, last week called for an emergency meeting of the Organization of Petroleum Exporting Countries (OPEC), seeking to halt the decline. The proposal of Venezuela has not caught and, even Saudi Arabia, the world's largest oil exporter, issued a warning: "Get used to low prices".

The source of PDVSA, whose name is withheld because is not authorized to speak publicly, attributes the drop in oil prices "a cyclical phenomenon" and expected to soon be reversed.

The debate found Venezuela with the lowest level of savings in the last 11 years after their international reserves fell from 29.700 million in early 2013 to 19,800 million. Venezuela and PDVSA should pay an average of 10,000 million annually over the next three years to pay debt and interests, while still remaining billions of dollars in settlement currency to private companies, which has resulted in a shortage of food, medicine and airfare.

Analysts are convinced that, in the midst of this reduction in oil revenue, devaluation-and other measures will be "inevitable" because the Government will not hesitate to seek financing in any way expenses for the elections to the parliament, which currently dominates. They even believe that the Government will sell assets as a drastic measure to get fresh money.

"It's the first time a drop in oil prices happens so close to an election cycle," said the chief economist of the local firm ODH Consultants, Richard Obuchi. "Only sortable reduce oil prices if it is momentary" he predicted.

Link To Full Article: 

Facebook comments

Monthly newsletter featuring articles hand picked by our country managers from the best content across PanamericanWorld.

Monthly newsletter featuring articles hand picked by our country managers from the best content across the Caribbean Region on PanamericanWorld.