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from
Forbes
The pending collapse of Venezuela poses serious short- and long-term challenges for oil markets, but it also contains a silver lining for the OPEC cartel.
Venezuelan oil production has been in decline for the past decade, but output has plunged rapidly in recent months as the OPEC member’s political and economic crisis intensifies bringing state oil company PDVSA to its knees. Venezuela production hit a three-decade low of 1.6 million barrels a day in January, down 20% from the same month a year earlier and off a whopping 600,000 barrels a day from its 2016 average of nearly 2.2 million barrels a day.
The country’s situation will only get worse.
Venezuelan production is likely to fall another 400,000 to 600,000 barrels a day this year – and that assumes President Nicolas Maduro’s beleaguered regime survives. Total collapse of the regime, which the United States could help bring about by imposing tough new sanctions on Venezuela’s oil sector, could see output ground to a complete halt.
Much hinges on Venezuela’s presidential elections on May 20. If Maduro uses the election to further consolidate his grip on power, it could prompt Washington to slap the harshest of measures on Caracas. These could include an outright ban on imports of Venezuelan crude, or, more likely, an embargo on U.S. exports of light oil and refined products to the South American country.
Venezuela’s woes have been flagged by the International Energy Agency as a major wild card in oil markets this year that have contributed to the recent firming of crude oil prices, which are sitting at comfortable $65 a barrel on the international benchmark.
Recent gains by crude have been supported by over-compliance by Saudi-led OPEC with its production cut deal involving non-OPEC producers, including Russia, which has helped tighten supply-demand fundamentals significantly. But much of OPEC’s stellar compliance lies with Venezuela’s faltering production.
In February, S&P Global Platts estimated OPEC’s production was 340,000 barrels below its target of 32.73 million barrels a day – but that Venezuela accounted for more than the entire production shortfall.
Venezuela’s meltdown comes at a convenient time for OPEC and provides a convenient hole for U.S. shale growth and keep it from crashing the market again. Because of this spare capacity, OPEC and shale could potentially co-exist profitably in a world of $60-to-$70 a barrel.
The total collapse of Venezuela could bring about a different set of issues. The ensuing chaos and confusion could see Venezuelan exports drop to zero while buyers try to assess who to trust in Caracas.
Venezuela’s precarious financial position has already hampered its oil trade. Courts in the Netherlands Antilles have already permitted PDVSA creditors to seize two of the company’s oil cargoes in recent months. Cash-strapped Venezuela was found to be in “selective default” in November and efforts to restructure its debt have gone nowhere in part because of existing U.S. sanctions restricting its access to financial markets. A regime collapse could see oil prices spike as much as $10 a barrel, but a combination of “on-command” Saudi spare capacity and release of strategic reserves would likely make that boost only temporary.
President Trump’s administration wields much power over Caracas because the United States is Venezuela’s largest crude customer – although U.S. imports of Venezuelan oil have fallen sharply over the past year due to the OPEC member’s upstream problems and, to a lesser extent, fears of violating existing sanctions.
According to the U.S. Energy Information Administration (EIA), we imported 442,000 barrels a day from Venezuela through February 9 of this year – a big drop from the 749,000-barrels-a-day level over the same period last year.
Refiners everywhere are complaining about the deteriorating quality of Venezuelan crude; here lies another area where we have leverage over Caracas. Washington could apply sanctions banning U.S. exports of the light oil PDVSA needs to mix as diluent into its super-heavy crude. Restrictions on sales of gasoline and diesel to Venezuela are under consideration, too. Some refiners remain wary of new sanctions, but many others say they could adjust by replacing Venezuelan crude with similar grades from Canada, Saudi Arabia, West Africa or elsewhere.
The bottom line is that there is no quick fix for PDVSA’s state of disrepair. For years it has suffered from an exodus of talent. The country’s humanitarian crisis and rapid inflation rate – which has risen to over 4,000% over the past year – has exacerbated the brain drain; Venezuelan refugees are now pouring into neighboring countries. Reviving the country’s oil sector will be a major endeavor, requiring not only massive investment but a bottom-up approach to rebuilding the state oil giant. PDVSA’s $65 billion debt makes Maduro’s promise of recovering 70% of lost oil production volumes in the first half of 2018 simply impossible.
It will take substantial time for Venezuela to rebuild trust with international oil companies and service contractors, who are owed substantial sums by PDVSA. Still, even as the national government teeters on the brink of collapse, Venezuela’s 300 billion barrels of reserves remain tantalizing to many international oil companies – and the reason why they stuck it out under difficult conditions under Maduro and his predecessor, Hugo Chavez. Under the right fiscal conditions, the oil industry insists that Venezuela’s reserves can be extracted profitably. For that to happen, though, a credible and creditworthy government must emerge in Caracas.
from
American Thinker
Socialist Venezuela, the "sea of happiness" whose system was touted by Sean Penn, Oliver Stone, Joe Kennedy, Bernie Sanders, Cindy Sheehan, and others, is losing its people. A lot of people. The nation of nominally 28 million people has now seen as many as four million flee for their lives, unable to stand all that "sea of happiness."
That's one out of seven Venezuelans, a figure even worse than the one out of ten who have fled Castro's Cuban island hellhole for the exact same reason: socialism. The Venezuelan human waves are just beginning. And it's going to get a lot worse. It's time to start thinking about what can be done about this disaster.
The Post compares the Venezuelan refugee exodus to Europe's 2015 mass migration of Syrian refugees and 2017's Rohingya exodus from Burma. In reality, it's bigger, because it's connected to Latin America's other two refugee crises cited by the Post: the millions of Cubans who fled Cuba's socialism through the 1960s, 1980s, and present day, and the million refugees from El Salvador, whose crisis was brought on by Cuban-backed communist guerrillas. Venezuela, which is Cuban-run, is now seeing its human waves for the same reasons. Same socialism, different horror.
The Washington Post describes how desperate Venezuelans are now "pouring out" of that explicitly socialist paradise and have now turned up on sidewalks, in parks, and in cheap motels in neighboring Colombia as well as nearly every nation in Latin America not bearing a socialist label. Chile has seen the highest percentage increase of more than 1,000%, according to the Post. Colombia, the country next door, has seen the highest absolute numbers, at least 600,000, with only 150,000 in the country legally. The fact that these Venezuelans are going to Colombia instead of the distant U.S., as Central America's migrants are doing now, is a sign that they are real refugees, not economic migrants. Real refugees take any port in a storm, including a relatively poor country. Real refugees suffer not just economic privation but political persecution, which is part and parcel of socialism. Venezuelans are imprisoned and tortured for dissident views, as the Post reports. Their leaders are barred from running for office. They themselves are terrorized by government motorcycle gangs, which control their food ration cards and demand votes for the ruling party as conditions for getting them. Their vote is not secret. Cubans control their identification card system. Elections, since at least 2004, (when Jimmy Carter naively certified as free and fair a recall referendum), have borne heavy signs of fraud. It's not just wanting a better economic situation that is driving them out. Even on the economic front, the problems are political - with businesses expropriated, homes burned out by government goons, and workers fired for not voting the party line. But, being impoverished by socialism's worthless money, Colombia is as far as fleeing Venezuelans can get.
The Post quotes a particularly idiotic United Nations official who dismisses the reality that they are refugees because bombs are not falling:"People fleeing Syria were generally seen as refugees, but that's not the case with Venezuelans," Merkx said. "Venezuela is not being bombed. It has some of the dimensions [of a refugee crisis], but not all Venezuelans are refugees."
What he fails to understand is that socialism is war against people, every bit as bad as physical war. The final days of the Soviet Union, where Aleksander Solzhenitsyn spoke of "spiritual exhaustion," made for the same agony and trauma that Venezuelans are now enduring. Socialism mobilizes people for war, constantly, and its countries even look like war zones. And every one of these hellholes experiences millions of people fleeing for their lives, at least until the doors are bolted shut, which may happen in Venezuela, too.
The Post deserves some credit for reporting this, because the downstream media, such as television, which take their cue from what's in the papers, aren't picking these stories up. Hot Air's John Sexton rightly notes that the silence is there out of the domestic left's embarrassment about the real impact of socialism. The Post could do better by including the word "socialism" in its reportage, but at least they are expending the time and high expense of reporting such stories. All the same, they lose the meaning of their stories by not singling out socialism.
That they are not, and the broader media is silent, is a problem, because our Millennial generation here largely thinks socialism is preferable to capitalism.
In the foreign policy circles, the talk is all about how to provide for the refugees instead of strike at the root of why people choose to become refugees in the first place, which is socialism, and the brutal regime that is driving one out of seven of its citizens from their homeland. Until the socialist roots of this nightmare are adequately exposed in a Nuremburg-style discrediting, the refugee flood will all be just a big bill for the U.S. and Latin American taxpayers and a subsidy to the Venezuelan socialist ruling class running this country into the ground.
