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Venezuela Economy Crashes Due To Drop In Oil Price by 2emgee(m): 12:37pm On Aug 28, 2016 |
Venezuela is facing the worst economic and
humanitarian crisis in its history. Venezuela has
been hit by the 24 months collapse in oil prices.
Its economy is expected to shrink 10 percent at
the end of 2016, the biggest contraction in the
last 13 years, while inflation has reached more
than 700 percent according to the International
Monetary Fund (IMF). Other analysts say that
inflation has already reach 1,000 percent.
Venezuelans are living day-by-day facing a very
complicated situation with rising crime and
corruption rates, daily electricity blackout,
medicines and food shortage (more than 80
percent). Venezuelans can’t get even the most
basic lifesaving medical supplies as antibiotics.
On Monday 22th August 2016 Brent oil traded
around $49 a barrel, but two years before Brent
was $102 a barrel, and even then Venezuela was
already having economic problems. Even with a
recovery in crude, higher prices are unlikely to
solve the economic, humanitarian and political
crisis.
In Venezuela 96 percent of foreign currency
earnings come from oil industry and with the
collapse of the oil prices the income has fallen
more 50 percent. But in addition to declining
revenues, oil production has also dropped,
doubling the pain for Venezuela.
The problems could grow worse. Several oil
service companies suspended or slowed
operations in Venezuela this year due to
difficulties in obtaining payment from the state-
run oil company, Petróleos de Venezuela
(PDVSA). Contractors have cut back on drilling in
Venezuela amid rising unpaid debt, which
threatens to take Venezuela’s output down even
further.
On June 28th 2016, Baker Hughes reported that
the number of oil rigs in Venezuela dropped
from 69 to 59 in May of this year. The CEO of the
Italian oil and gas contractor Saipem SpA said
that in April the company had suspended 89
percent of its operation rigs in Venezuela ( 25 of
its 28 rigs). Other companies as Schlumberger or
Halliburton Co are reducing their activities in
Venezuela because of unpaid services bills.
Venezuela’s active rig count, a good indication of
future production, fell from 71 to 49 in July
according to Baker Hughes, the lowest since the
end of 2011.
Since 1998, oil production in Venezuela has
been reduced by 750,000 barrels per day, with
output falling by 250,000 barrels per day in the
first half of 2016 alone, according to Dr.
Francisco Monaldi, a fellow in Latin American
Energy Policy at the Baker Institute at Rice
University in Houston. Luisa Palacios, a senior
managing director at Medley Global Advisors
LLC, said that exports in Venezuelan crude has
fallen by more than 300,000 barrels per day in
June 2016, compared with 2015 average.
PDVSA is in talks with oil services companies to
turn unpaid services into financial instruments,
a process known as securitization. Venezuela’s
oil minister Eulogio Del Pino last month said
that PDVSA had signed financing agreements
with Weatherford International Plc and
Halliburton and was close to a deal that would
allow Schlumberger to boost its presence in the
OPEC nation. “This mechanism enables to trade
commercial debt for financial debt, improving
cash flow holding instruments with financial
return, in order to manage the low oil price
environment” said Del Pino. These mechanisms
allow the contractors to continue local
operations. The statement describes these
operations as a “plan in development” that was
supported by “important drilling and services
companies,” without naming which ones were
involved in the discussions.
In recent years PDVSA’s debt has increased from
$3 billion to more than $43 billion, Dr.
Monaldi said on César Miguel Rondón’s radio
program from Union Radio, Caracas Venezuela
in August 16th this year.
Even if oil prices increase, the situation is very
complicated for Venezuela’s economy. PDVSA
has no cash, it is struggling to pay its debts and
the oil industry needs huge investments to keep
oil production from falling, leaving aside
investments in new operations.
For the moment the Venezuelan government
has prioritized meeting debt payments even if
that means deteriorating conditions for its
populace. It seems like an odd choice, but for a
country that depends on oil exports for 95
percent of its revenue, the government is
certainly concerned about exposing itself to
legal actions by bondholders in international
courts. Also, the cost of default could be higher
than the payment of his obligations.
Furthermore, the non-payment will add a more
negative image for the government bonds,
which puts it in uncomfortable position to
renegotiate any new lines of credit. Venezuela,
so far, is still solvent. However, this issue is
badly managed by the government with the
erroneous policies. Venezuela must learn from
past mistakes and needs massive reforms to put
the country in the right direction. Source: oilprice.com |
Re: Venezuela Economy Crashes Due To Drop In Oil Price by Nobody: 12:43pm On Aug 28, 2016 |
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Re: Venezuela Economy Crashes Due To Drop In Oil Price by Badtman(m): 12:58pm On Aug 28, 2016 |
Sufferness dey world, No be only Nigeria |
Re: Venezuela Economy Crashes Due To Drop In Oil Price by plainol(m): 1:11pm On Aug 28, 2016 |
A Jonathan must be leading them. |
Re: Venezuela Economy Crashes Due To Drop In Oil Price by FOLYKAZE(m): 1:34pm On Aug 28, 2016 |
Though we are facing so many challenges but I believe that Nigeria as a greateat nation of the black people will survive |
(1) (Reply)
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