Nervous oil traders fixated on Venezuela risk - FT.com
The political instability is threatening to hit production at PDVSA, the state oil company, which is the country’s main source of export revenue and the regime’s cash cow.
...analysts at Citigroup called Venezuela “probably the biggest bull risk to the oil market in 2014 outside of the MENA [Middle East and north Africa] region”.
“The current regime is looking increasingly unstable, with rampant inflation, shortages of food and other basics. In the event of a coup the country’s production could collapse as it did back in 2002 [when PDVSA workers went on strike],” the bank’s analysts added.
The second concern is more prosaic – cash. Since 2007 China has committed to lend Venezuela more than $40bn, which has helped keep the economy afloat. But traders say PDVSA is struggling to supply the more than 300,000 barrels a day of exports required under the agreement, while still generating export revenues by selling elsewhere.
“It is a matter of time before Venezuela defaults on its loans to China and without more cash the government will struggle to pay wages and there will be chaos,” says one senior trader, who says the market should be factoring in a significant reduction in Venezuelan output next year.
Alberto Cisneros, a former senior executive at the company, warns of a “vicious circle of debt” as PDVSA is forced to borrow money to fund the government, but is unable to invest in production.
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