Archive for the ‘oil’ Category

LatAm currencies slide

Tuesday, July 21st, 2015

The WSJ reports,
Latin American Currencies Hurt by Commodities’ Drop, U.S. Fed ExpectationsMexico’s peso at new low against dollar, though nation may benefit from weakness

While the economic factors vary from country to country, most are suffering from lower global growth, loss of export revenue from falling commodities prices, and a rising dollar that is making emerging-market yields less attractive to portfolio investors anticipating that the U.S. Federal Reserve will start raising interest rates soon.

Latin American countries never seem to get out of the extractive economic model set under the Spanish and Portuguese empires; add to that the end of quantitative easing and of zero interest rates in the U.S., and the prospect is glum.

Mexico’s recent public auction of shallow-water exploration blocks in the Gulf of Mexico failed to attract international bidders:

The private sector often has a better understanding of subsea prospects than the public sector, but Mexico’s wariness about fully ceding control may have prevented the government from understanding the true value of the blocks. “They are still having trouble letting go of the old mindset of full control, rather than letting the market decide,” says one industry executive. One of the two blocks awarded to the winning consortium (comprising Mexico Sierra Oil and Gas, Dallas-based Talos Energy and London-based Premier Oil) was more hotly contested than the government expected; four groups offered well above the government-mandated minimum.

Because of historical sensitivities, Mexico awarded rare profit-sharing contracts between the state and private firms, rather than fully confer ownership of oil reserves to the private sector. It also required a level of corporate guarantee to cover spillages that went beyond international norms. Its potential ability to rescind contracts has alarmed some oil companies, too, lest their wells be expropriated without compensation in the future.

Once you factor in those risks vs current oil prices, the real story here is simpler: the financial arithmetic facing a potential investor has been totally upended by the collapse of oil prices.

And let’s not forget the batshit-crazy approach to debt.

Ecuador: Correa thinks Brad bought the wrong book

Friday, May 15th, 2015

Brad Pitt bought the movie rights to Paul Barrett’s book, Law of the Jungle: The $19 Billion Legal Battle Over Oil in the Rain Forest and the Lawyer Who’d Stop at Nothing to Win about fraudster Steven Donziger.

Rafael Correa is not happy:

Ecuador’s president urges Brad Pitt to scrap Amazon oil spill movie
Socialist leader Rafael Correa concerned film will be based on a book he alleges covered up actions of oil giant Chevron

He said: “Now they’ve brought out a book, Law of the Jungle, all paid for by Chevron, in which we look like savages in a country without any separation of powers. If he has any doubts, we invite him to come to Ecuador and scoop up with his hands the oil which still lies in pools 30 years later and which was left by that corrupt oil company Chevron-Texaco, continuing to pollute our forest. Given the clarity of the facts, anybody who signs up to or collaborates with Chevron is an accomplice to that company’s corruption.”

Correa seems to have heeded John Oliver’s advice to stay away from Twitter, but there’s a hashtag all the same – #braddotherightthing.

One with misspellings, complete with photo of Brad’s 2012 trip to Lago Agrio,

One grammatically correct,

Correction:
In my original post, I snarked about Brad Pitt. I reconsidered, and apologize for unduly casting aspersions.



Venezuela: Electricity rationing because of . . . global warming

Thursday, April 30th, 2015

The country with (allegedly) highest oil reserves is starting to ration electricity.
Venezuela to Begin Nationwide Power Rationing
Persistent heat wave causes a surge in demand for air conditioning

Shaky power supply is one of many problems facing Venezuela as the resource-rich South American country reels from an economic crisis and a cash crunch partly due to lower oil prices. Frequent blackouts in the interior of the country have stoked accusations of mismanagement and insufficient power grid investment by the government, which nationalized the electricity sector under the late leftist leader, Hugo Chávez.

But authorities in Venezuela, which relies on hydroelectric turbines for two-thirds of its power supply, say climate change is to blame.

“This is, of course, linked to global warming and the excessive industrialization of capitalism, which never stops, nor has ever stopped, for the effects that it can have on the climate, on society and on Mother Earth,” Mr. Arreaza said.

The blackouts have been going on for a couple of years, but the rationing is new.

Talking from both sides of the mouth, they ask that you get a generator, to use up more Venezuelan gasoline that the government insanely subsidizes to a consumer price of $0.002 a gallon, because, capitalism causes global warming or something,

Vice President Arreaza also made a bizarre call for the use of “autogenerated” electricity to reduce demand on the government’s plants. “Both the public sector as well as large [private] consumers should opt for autogeneration,” he said in the statement announcing the new plan. “That is to say, that they use their own equipment and plants to generate electricity, especially in peak hours, and not use the National System.”

Venezuela is probably netting less than US$20/barrel on its heavy, low-quality oil. It needs oil at $151 a barrel to balance its budget.

Another Venezuelan export, cacao, can’t generate revenues because the government cancelled export permits.

Again, Communism doesn’t work.

Venezuela: Get ready for $10 oil?

Thursday, February 19th, 2015

Gary Shilling at Bloomberg is saying, Get ready for $10 oil It has to do with the marginal cost of production,

or the additional costs after the wells are drilled and the pipes are laid. Another way to think of it: It’s the price at which cash flow for an additional barrel falls to zero.

Last month, Wood Mackenzie, an energy research organization, found that of 2,222 oil fields surveyed worldwide, only 1.6 percent would have negative cash flow at $40 a barrel. That suggests there won’t be a lot of chickening out at $40. Keep in mind that the marginal cost for efficient U.S. shale-oil producers is about $10 to $20 a barrel in the Permian Basin in Texas and about the same for oil produced in the Persian Gulf.

Also consider the conundrum financially troubled countries such as Russia and Venezuela find themselves in: They desperately need the revenue from oil exports to service foreign debts and fund imports. Yet, the lower the price, the more oil they need to produce and export to earn the same number of dollars, the currency used to price and trade oil.

With the drop in prices,

Among the hardest hit are those nations that rely on oil for much of their government revenue and were in financial trouble before prices plunged. Venezuela along with its state-run oil company issued more debt than any developing country between 2007 and 2011. Venezuela has been downgraded to the bottom of the junk pile — CCC by Fitch — and credit-default swaps on Venezuelan debt recently indicated a 61 percent chance of default in the next year and 90 percent in the next five years. The nosedive in oil prices also is devastating African exporters Ghana, Angola and Nigeria, where oil finances 70 percent of the government’s budget.

How Bad Is Venezuela’s Economic Chaos? Bad enough that

Maduro has yet to fully account for how his government will meet its $10.3 billion debt obligations in 2015. A March 16 payment totally $1.1 billion is fast approaching and Venezuela’s economy is languishing.

I am not optimistic at all; even if Maduro goes, the country can remain under a dictatorship, just as Cuba has, for decades to follow.

And, by the way, even when the minimum monthly wage of 5,600 bolivars ($32 on a new exchange market created last week) is close to useless, the late dictator Hugo Chavez managed to sock away US$12 billion in his HSBC account.

So, all of you who preach that “Chavez immensely decreased inequality” in Venezuela can take that, spread it, and eat it on a cracker.

Argentina: Today’s cartoon

Tuesday, January 27th, 2015

Cristina tango

Ayatollah: “There won’t be an investigation?”
Cristina: “No, but after the tango, a little oil . . . OK?”

Venezuela: Maduro wants a Puerto Rican out jail

Tuesday, January 6th, 2015

. . . who didn’t want to be pardoned.

Taking a cue from the U.S.-Cuba sweet deal (sweet for Cuba, that is), Venezuelan dictator Nicolás Maduro wants to make a deal:
Venezuela’s Maduro would free Lopez if U.S. freed Puerto Rican

Venezuelan President Nicolas Maduro said on Sunday he would only seek the release of jailed opposition leader Leopoldo Lopez if the United States agreed to release a Puerto Rican nationalist currently held in a U.S. prison.

The man in question, Oscar Lopez Rivera, is serving

70 years for seditious conspiracy and a variety of weapons charges as well as the second thwarted escape attempt (which included plans for the use of violence)

in Leavenworth, and,

he is a dangerous terrorist as well as a sociopath, and has never been known to express any regret or remorse. He was a co-founder of a deadly terrorist group, who constructed bombs (their weapon of choice) and trained others in both how to build them and how to use them. He twice attempted to escape from prison, and the latter attempt included plans of violence and murder.

Lopez-Rivera was offered clemency by Bill Clinton in August of 1999 (in a move that was engineered by then Deputy Attorney General Eric Holder) but refused to show remorse.

So, not only is Maduro meddling into Puerto Rican politics again – where he clearly is not wanted, he’s offering to exchange Leopoldo Lopez, an innocent man, for a sociopath terrorist:

“The only way I would use (presidential) powers would be to put (Leopoldo Lopez) on a plane, so he can go to the United States and stay there, and they would give me Oscar Lopez Rivera – man for man,” Maduro said during a televised broadcast.

After his offer, Maduro headed overseas – in a Cuban jet – in search of money, since at home the shelves are empty and oil hit $50/barrel as of the writing of this post.

He bundled up for the occasion:

First Russia, where Putin couldn’t fit him in his schedule. After that, China, where he has a date with

Chinese President Xi Jinping during his visit and take part in a meeting between China and the Community of Latin American and Caribbean States Jan. 8-9 in Beijing.

Busy, busy.

UPDATE:
Regarding China, read today’s post by David Goldman.

China will be more active in Latin America.



Brazil: Dilma’s shaky inaugural

Friday, January 2nd, 2015

The WSj writes on Dilma Rousseff’s second inaugural. Brazil Leader Starts Term on Shaky Ground
President Dilma Rousseff Promised to Fight Corruption and Fix the Economy During Her Inauguration

After being in office for four years, the numbers are not good:

In an inauguration ceremony that was upbeat but drew sparse applause and little spontaneous celebration by her supporters, Ms. Rousseff extolled her legacy of poverty reduction while outlining a vision to get Latin America’s largest economy back on track.

“We will prove that it is possible to make adjustments to the economy without repealing rights that have been won or betray social commitments,” she said in a speech in Brazil’s Congress attended by cabinet members, foreign dignitaries, allied lawmakers and other officials.

Her pledge came as Brazil confronts flat growth, stubbornly high inflation, ballooning debt and a potentially explosive corruption scandal at state-controlled oil giant Petróleo Brasileiro SA, or Petrobras.

Petrobras is key:

But the darkest cloud on the horizon for Ms. Rousseff might be the fast-moving corruption scandal at Petrobras.

Brazilian prosecutors allege that executives at Petrobras conspired with construction companies to inflate the cost of contracts, skimming off as much as $1.5 billion, by the estimate of Brazil’s budget watchdog, to enrich themselves while funneling kickbacks to Ms. Rousseff’s Workers’ Party and its allies.

Ms. Rousseff hasn’t been implicated in the scandal, and leaders of her party have repeatedly denied allegations of involvement. Police have already filed charges against 36 suspects, including two former Petrobras officials.

There are two things to bear in mind:
1. The enormous amounts of money handled through Petrobras (and the temptation/opportunities for corruption)
2. Brazil’s antecedents when it comes to scandals and prosecutions

Related:
Blast from the past: The Economist explains What is Brazil’s “mensalão”?

Ecuador: Selling it to China

Friday, December 19th, 2014

This is a photograph of a 420,000-gallon oil spill in Ecuador’s Amazonian region in June 2013:

Andrew Ross, writing at The Nation, asks,
Why Is Ecuador Selling Its Economic and Environmental Future to China?
The slick, oily underside of Correa’s “citizens’ revolution.”
(emphasis added)

While large swaths of the Amazon Basin remain uncharted, the most telling maps depict the region carved into numbered oil blocks, some of them hundreds of square miles in area. The Pañacocha field, for example, sits in Block 12; the ITT oil reserve is located in Block 43; and Block 57 is where Suárez took me. The blocks are periodically auctioned off as concessions to oil companies, and more and more of them are marked as a Chinese claim or interest. The Chinese extraction sites are remote, but anyone traversing the Amazon waterways, as I did this past summer, will routinely pass boatfuls of Chinese oil workers. At this point, China exercises a near monopoly on Ecuador’s oil—up to 90 percent this year alone—and is fast becoming the dominant player in mining and mineral extraction.

Of course, Ecuador is hardly alone in its growing dependence on Beijing. China committed almost $100 billion in loans to Latin America between 2005 and 2013—$15 billion last year alone, while the World Bank lent a mere $5.2 billion. But many believe that the erosion of sovereignty has been sharper in Ecuador than elsewhere in the region. The terms of its loans from Beijing are not fully transparent, giving rise to the worst suspicions. A March 2014 Amazon Watch report alleged that Petrochina has the contractual right to seize assets from any oil companies operating in Ecuador if the nation does not pay back China in full. A more extreme version of this claim is that the terms of loans include a “sovereignty immunity waiver,” that permits China to seize Ecuador’s own assets if it defaults. One of the administration’s chief critics, Acción Ecológica director Alexandra Almeida, told me that “the agreements with the Chinese are unlike any other. Even with Chevron we knew what we were getting. No one knows that much about the Chinese loans.”

Ross views the situation from the left, saying things such as “On the face of it, Beijing is not as easy to demonize as the infamous Paris Club, which represents the interests of Northern creditors,” and “has no history of ecological debt to Latin America.” But Ross is not blind to the fact that

environmentalists, like the YASunidos, have become Correa’s number-one enemy, labeled by some of his ministers as “enemies of the state.” Recent shifts in the interpretation of the penal code have made it possible to criminalize dissidents as “terrorists,” and domestic repression is growing.

Read the whole thing.

Venezuela: Default by September 2015?

Thursday, December 11th, 2014

Casey Breznick posts,

A CNBC report on the prospect of a Venezuelan default cited a Capital Economics report stating that a default could be expected by next September or October when $5 billion in debt payments come due. Only an upswing of oil prices to somewhere around $121/barrel would allow Venezuela to balance its budget, according to some estimates. But with OPEC recently slashing its 2015 production levels to a 12-year low in response to decreasing estimated global oil demand and increasing supply via U.S. shale production, a significant oil price increase in the short-term seems highly unlikely. Bloomberg reports that the implied probability of default—derived from complex financial formulas—in the next five years stands at 93%, the highest in the world.

The Devil’s Excrement looks at Maduro’s New Script,

You may laugh all you want at what he says, but I don’t. He is making a very specific narrative out of all this and I am not sure where it is heading. It may be that he just wants to blame  the US for the intensification of the crisis in the next few months or simply, that he is preparing the ground in case there is no money to pay international investors. There is a one billion Euro payment in March, which looks doable, but there are much larger maturities in October 2015. But investors have so far believed that Venezuela had a “willingness” to pay, and the action in the markets today indicated some people were losing faith.

It did not help that Bloomberg reported today on a meeting with investors at a New York law firm, which actually took place like ten days ago. This meeting actually ended in a somewhat positive note, as many suggested that Venezuela and PDVSA could not get away with a restructuring below current prices for most bonds, as the oil cash flow would not justify it.

Francisco Toro:

It’s not the gobs of debt monetization, the billions of make-believe-bolivars the Central Bank loans PDVSA leading to an uncontrolled monetary expansion and the collapse of demand for real money balances.

It’s not the opacity in public accounts, the drop in reserves, the commercial default, the implosion in the goods markets, or the fact that you need your kid’s birth certificate to buy her diapers.

It’s not the fiscal deficit at 17% of GDP, or oil at $58 per barrel, or the tapped-out Fonden “sovereign wealth fund,” or the fact that the Finance Minister gives every possible public sign that he’s an idiot.

It’s not that the one regime official who announced a semi-reasonable reform that might have stanched the flow got shifted sideways to a non-economic job.

It’s not the Central Bank’s scandalous subservience to the Executive branch, or the fact that it won’t even dare publish basic inflation statistics.

It’s not that PDVSA has missed every production increase target it’s set for itself since 2003, it’s not that its refineries are badly maintained and barely functional, much less profitable.

It’s not that labour laws make it insane for a worker to waste his time working, and unreasonable as well as that is time he needs to spend queueing for basic consumption goods.

It’s not that the investment climate has been so shitty for so long, and the profit repatriation picture so bleak, no one sane even considers putting money into Venezuela.

Nope. It’s none of that. According to Maduro, it’s all a conspiracy, led by some flunkie sitting at a cubicle at Moody’s, someone who for some weird reason has decided to mess with his revolution. That’s why it’s expensive for Venezuela to borrow.

PDVSA 2022 bond in the last three months. It was losing 14% of its value today, with a yield to maturity of 31.4%:



Venezuela: The oil teat runs dry

Sunday, December 7th, 2014

Earlier this week I mentioned that Venezuela needs to sell its oil between $150-$200/barrel in order to break even. While the country’s economy is increasingly dependent on oil revenues since oil accounts for 95% of all exports, Venezuela ships cut-rate oil to Cuba and 13 other countries. For the last year, Venezuela’s had to cut back:

For a decade, the 13 beneficiaries of Venezuela’s largess have depended deeply on the oil to finance social spending and infrastructure, and rewarded Caracas with diplomatic support on the international stage, regional diplomats said in interviews.

Even as Venezuela pledges to continue the program, the country’s oil exports to the countries fell about 20% through October compared with the same period last year, says ClipperData LLC, a New York data tracker. And last year, Venezuela’s cut-rate oil exports declined 15% from 2012, the International Monetary Fund says.

Petrocaribe may become a thing of the past, which curtails Venezuela’s influence at the OAS and the UN,

The program has cost Venezuela $22.1 billion, with Petrocaribe countries accumulating more than $11 billion in debt through 2013, said Mr. Piñon, basing his calculations on PdVSA data.

In return, Venezuela got loyal allies that voted with Venezuela at the United Nations, the Organization of American States and at other regional bodies, diplomats and officials from four countries said.

Let’s hope the US State Department recognizes this as an opportunity, especially as Russia and Iran widen their scope in our hemisphere.

But I doubt they will.