As I write this article, oil is currently trading at $79.02 according to CNBC.
Crude oil futures dropped Tuesday as the market anticipated months of weak demand even if the U.S. government succeeds in preventing the economic downturn from deepening.
The Mideast worries and talks about reducing output, but the one with the most reason to worry is Hugo Chavez. No one, and I mean not one single petty tyrant in all the oil-financed tyrannies in the world, is as dependent on oil revenues to maintain himself in power. Venezuela relies on oil income for more than 40 percent of its budget and Chavez squanders every day millions of dollars of oil revenues while oil production has fallen by a quarter since he won power.
The official rate of inflation is 22.5 – the highest in Latin America. However, inflation in some sectors, such as food, is 50%. The Venezuelan economy is in tatters now and will get a lot worse.
In the meantime, “Baby needs a new pair of shoes.”
(link Not Suitable for Work due to language)
“Baby needs a new pair shoes“:
Earlier this month – when oil was still in the $90 range – Chavez was telling the boliburguesia to cut down on certain types of vehicles, celluars and parties. They’ve learned to use the foreign currency markets, and they want their money. These bureaucrats are happy to have Chavez in power as long as he bankrolls the lifestyle they have so become acustomed to under Chavez. “Baby needs a new pair of shoes.”
Chavez sent $300 million to the FARC earlier this year. “Baby needs a new pair of shoes.”
Chavez is buying Russian jets, and the Russians don’t take Mastercard. “Baby needs a new pair of shoes.”
Chavez has all sorts of new business deals with Iran, and the mullahs don’t take Mastercard, either. “Baby needs a new pair of shoes.”
Chavez also sends financial support Argentina, Bolivia, Ecuador and Nicaragua. “Baby needs a new pair of shoes.”
Lord knows what kind of deals Chavez has with China. “Baby needs a new pair of shoes.”
Lots of babies, lots of shoes, all coming from oil proceeds. And now oil’s down.
Noticias24 (in Spanish) and El Universal ( in English) both publish a report by PFC Consulting Limited, a Washington-based wholly owned subsidiary of Power Finance Corporation Limited, and German bank Deutsche Bank, which states that Venezuela is the most vulnerable country to the financial crisis:
PFC considers that Venezuela needs that the price of oil averages USD 97 to balance its accounts while in 2000, the South American country required that the price of the barrel of petroleum was USD 34.
And the price of oil can plummet even lower,
Goldman expects crude to average USD 75 in the fourth quarter and USD 70 at the end of the year, but added: “Should the financial and economic crisis cut deeper into demand, the market could fall as low as USD 50 a barrel.”
Oil drops, Hugo sweats.
Daniel‘s been looking at outcomes and odds for the short term (less than a year). All the options hinge on Chavez, and his future is directly linked to the price of oil.
I will speculate further and say that if oil stays below $80 for an extended period of time, Chavez will be looking at real estate in a retirement community near Cannes.
UPDATE, Wednesday 15 October
15 Minutes on Latin America: Oil drops, Hugo sweats
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