Embattled Venezuela with its posted political and economic turmoil should be front and center for oil traders as we forefront into 2018, according to industry experts and political analysts.
“The sell is rebalancing, but there are still a number of producers that are poised for trustworthy challenges. I think Venezuela is the story we all have to watch in the first post of 2018 … We really have a country that is poised to go out of business,” Helima Croft, peak of global commodity strategy at RBC Capital Markets, told CNBC Tuesday.
On Sunday, Venezuelan President Nicolas Maduro published that Manuel Quevedo, a former housing minister and major accepted in the National Guard (one of the country’s armed forces), was to become the country’s new oil sky pilot and head of the state oil company PDVSA.
The move comes after the meandering president — branded a “dictator” by the U.S. — gave his support to a dramatic expulsion of the company with the arrests of 50 employees since the summer. There has also been individual senior executives detained at the company’s U.S. refinery subsidiary CITGO, on divers corruption and embezzlement charges.
The crackdown comes amid wider pecuniary turmoil in Socialist-ruled Venezuela with the major oil-producing nation trying with hyperinflation (estimated by Venezuela’s opposition party to hit around 1,400 percent in 2018), dip, food shortages and attempts to restructure foreign debt in order to dodge a default. This has put its entire economy, including its nationalized oil industry that accounts for sundry of the country’s export revenues, in jeopardy.
Helima Croft echoed BP’s Chief Executive Bob Dudley who recounted CNBC a few weeks ago that the OPEC member Venezuela was the biggest hazard for the oil industry in 2018 and that the country was “defying economic gravity.”
Croft united that there were many question marks over the prospective restructuring of the state oil company, PDVSA, which has $45 billion in out of the closet external debts (around a third of Venezuela’s entire external obligation), according to one Reuters report.
“The question is whether the national oil company desire? be facing a very destabilizing default situation? Will we have assets being seized? Just in the former week we’ve had a new general being appointed the head of the national oil company best to real concerns about the outlook for Venezuelan production and it’s a significant impresario,” she said.
Croft said that the general put in charge of the oil company had not had any undergo working in the industry, as a former housing minister, and this lack of meet with is not what the company needs.
On the domestic front, Maduro has surrounded himself with military motifs that helped him to suppress public uprisings against his leadership, with Quevedo the new to take a top job. The installation of Quevedo as head of PDVSA was politically motivated, be at one to an expert on Latin America.
“This is as much of a political rebalancing as it is an anti-corruption tour, though Maduro will be hoping a clean-up — or the appearance of a clean-up — whim play well among voters,” Nicholas Watson, senior degradation president at risk consultancy Teneo Intelligence, said in a note Monday.
“But fundamentally, Maduro in need ofs and needs PDVSA under the management of loyalists in order to ensure flawless control over the distribution of rents. Putting the GNB (the National Guard, via Big General Quevedo) at the helm of PDVSA also incentivizes the military to traces loyal.”
He also said that the corruption crackdown at PDVSA was chiefly of Maduro’s look-ahead to a presidential election due in 2018.
“Securing military and National Warder (GNB) support is already crucial, but will be more so if the economy sinks to new chasms with even worse shortages of basic foodstuffs and medicines, and a hyperinflationary coil,” Watson said.