Venezuela oil-backed cryptocurrency to launch in days, government says

CNBC

  • Venezuela’s cryptocurrency will launch within days and be backed by 5.3 billion barrels of oil worth $267 billion
  • The launch is a bid to offset a deep financial crisis, the socialist government said on Thursday
  • President Nicolas Maduro surprised many earlier this month when he announced the “petro” cryptocurrency

Venezuela's President Nicolas Maduro (C) gestures as he speaks during a rally supporting him and opposing U.S. President Donald Trump, in Caracas, on August 14, 2017.

Carlos Becerra | Anadolu Agency | Getty Images
Venezuela’s President Nicolas Maduro (C) gestures as he speaks during a rally supporting him and opposing U.S. President Donald Trump, in Caracas, on August 14, 2017.

Venezuela’s cryptocurrency will launch within days and be backed by 5.3 billion barrels of oil worth $267 billion, in a bid to offset a deep financial crisis, the socialist government said on Thursday.

President Nicolas Maduro surprised many earlier this month when he announced the “petro” cryptocurrency, to be backed by OPEC member Venezuela’s oil, gas, gold and diamond reserves.

Despite the skepticism of cryptocurrency experts who do not think Venezuela has the wherewithal to pull it off, communications minister Jorge Rodriguez said the first petro offering would come within days.

“Camp one of the Ayacucho block will form the initial backing of this cryptocurrency,” Rodriguez told reporters, referring to part of Venezuela’s southern Orinoco Belt.

“It contains 5.342 billion certified barrels of oil. We’re talking about backing of $267 billion,” said Rodriguez, adding that that differentiated the petro from other cryptocurrencies such as Bitcoin.

Miners were already lined up, he said, without giving more details. Cryptocurrencies are obtained by users setting up computers to do complex mathematical calculations in a process known as mining.

Cryptocurrencies are decentralized and their success relies on transparency, clear rules and equal treatment of all involved. Venezuela gave no technical details about the petro.

The government appears to be hoping the petro will offset a collapse in Venezuela’s currency – 97 percent in one year against the U.S. dollar on the black market – and isolate the country from the U.S. dollar and Washington.

Rodriguez also hopes to use the petro as part of a mechanism to pay international providers, many of whom have stopped supplying to Venezuela given its inability to pay its debts.

With Venezuela’s 30 million people suffering shortages, runaway prices and a fourth year of recession, Maduro has long blamed the U.S. government for an “economic war” against it. Critics say incompetent policies are to blame for Venezuela’s economic mess.

Earlier on Thursday, Maduro blamed U.S. pressure on Portugal for blocking imports of pork leading to a shortage over Christmas in Venezuela.

U.S. President Donald Trump’s administration has imposed various political and financial sanctions on Maduro’s government, accusing senior officials of rights abuses and corruption.

“It will be materially impossible for the dictatorial financial centers of the world to intervene against this initiative,” said Rodriguez, citing the Portugal case.

“It will allow us to overcome any financial blockade.”

Cryptocurrencies have grabbed global attention partly because of the remarkable rise in the price of Bitcoin, making millionaires of many early investors, including some in Venezuela who used Bitcoin and other cryptocurrencies to shield themselves from strict foreign exchange controls which economists blame for the crisis.

Venezuela is blowing debt payments ahead of a huge, make-or-break bill

  • Venezuela’s state oil giant has two massive bond payments coming due in the next two weeks.
  • The oil-dependent nation missed several debt payments totaling nearly $350 million last week.
  • Analysts don’t expect Venezuela to default in the coming weeks, but the missed payments have rattled the market.
Nicolas Maduro, president of Venezuela, speaks during a swearing in ceremony for the new board of directors of Petroleos de Venezuela SA (PDVSA), Venezuela's state oil company, in Caracas, Venezuela, on Tuesday, Jan. 31, 2017.

Carlos Becerra | Bloomberg | Getty Images
Nicolas Maduro, president of Venezuela, speaks during a swearing in ceremony for the new board of directors of Petroleos de Venezuela SA (PDVSA), Venezuela’s state oil company, in Caracas, Venezuela, on Tuesday, Jan. 31, 2017.

One week before Venezuela faces a critical debt payment, the distressed petrostate is already late on a series of smaller bills — and no one can say exactly why.

The nation’s state-owned oil giant, Petroleos de Venezuela, SA, has two major bond payments totaling about $2 billion coming due in the next two weeks. While the market expects the company, better known as PDVSA, to avoid default, the missed payments have rattled investors and raised fresh questions about how long embattled President Nicolas Maduro’s regime might last.

“You’re cutting close to the edge of not enough money in the checking account to pay the bills,” said Ray Zucaro, chief investment officer at RVX Asset Management, an asset manager specializing in emerging and frontier markets.

Last week, Venezuela missed five coupon payments totaling nearly $350 million tied to the debt of PDVSA, the government and the utility Electricidad de Caracas. That stoked a minor sell-off in a number of outstanding bonds.

Santelli Exchange: The

Santelli Exchange: The “bitcoinization” of Venezuela  

As for the upcoming payments, the first is due next Friday. The price of that bond dipped from a one-year high of $86.80 last week to $83.48 on Monday. It has rallied from a 12-month low of $62.50 on Aug. 1.

PDVSA needs to pay $841 million in principal, plus interest, on that bond. It’s a critical moment for Venezuela because a default is seen as hastening Maduro’s demise. Making matters worse, the collateral against the bond is Citgo, PDVSA’s Houston-based refining and retail subsidiary.

The following week, on Nov. 2, a nearly $1.2 billion PDVSA bond is maturing. Total outstanding obligations for 2017 are about $3.4 billion, and there’s no grace period for the two biggest payments.

As Venezuela’s economic and political crisis worsens, foreign reserves have dwindled to just $9.9 billion. But analysts and money managers say more than half of that could be in gold and illiquid assets.

The market currently puts the odds of a Venezuelan default at 15 percent, according to an analysis by RVX Asset Management, but Zucaro said he believes the chances are closer to 40 percent. The environment is deteriorating, he said, as Venezuela’s latest election results are being questioned and as sanctions on the country expand to include measures that prevent it from raising new funds.

Given the severe cash crunch, it’s possible that Venezuela skipped out on the five coupon payments, which have a 30-day grace period, in order to allocate those funds to the payment due on the Oct. 27 bond, Zucaro said.

Without help, Venezuela cannot pay liabilites alone: Daniel Osorio

Without help, Venezuela cannot pay liabilities: Daniel Osorio  

Edward Glossop, an emerging markets economist at Capital Economics, said that’s possible. Since Venezuela is essentially locked out of capital markets, the impact of missing the payments on its ability to borrow is negligible, he said.

But Glossop believes another explanation is more likely: that U.S. sanctions have created technical problems that have forced Venezuela to make alternative arrangements to pay its debt, delaying payments. Some U.S. institutions could be refusing to deal with the government for fear of sanctions, he said. However, he doesn’t doubt Maduro’s willingness or ability to pay, given that making debt payments has been a priority.

Capital Economics projects that Venezuela is unlikely to default until 2019, though Glossop says it faces another round of hefty payments in 2018.

“Next year is quite tough again. It will be sort of touch and go,” he said. “If oil prices remain where they are, we think they could get through.”

Helima Croft, global head of commodity strategy at RBC Capital Markets, believes Maduro will continue to rely on Russia to bail out the regime. Russia’s biggest oil company, Rosneft, has given PDVSA financial support.

“While it makes sense that they will preserve as much cash to avoid default, they will not be able to do it without Russia. So the question will be how much acreage will this cost them?” she said in an email. “Rosneft is acquiring Venezuelan assets at fire sale prices.”

Big buyer of Venezuelan crude oil halts purchases from national oil company

CNBC

  • The fifth largest U.S. buyer of Venezuelan crude, PBF Energy, has halted direct purchases from state-run oil company PDVSA.
  • PBF is the second buyer in as many months to go elsewhere for its oil and further disagreements could spell new hardships for PDVSA.
  • Venezuela relies on oil for over 90 percent of export revenue and U.S. refiners are among its largest cash-paying customers.

Reuters

The fifth largest U.S. buyer of Venezuelan crude, PBF Energy, has halted direct purchases from state-run oil company PDVSA, according to four sources, deepening a rift amid sanctions on the OPEC-member country.

PBF is the second buyer in as many months to go elsewhere for its oil and further disagreements could spell new hardships for PDVSA, which owes bondholders $1.2 billion in debt payments due this month. Venezuela relies on oil for over 90 percent of export revenue and U.S. refiners are among its largest cash-paying customers.

In August, the Trump administration imposed sanctions on Venezuela, in part barring new financial arrangements with PDVSA. Those restrictions have banks refusing to issue letters of credit needed to assure some oil sales.

PBF notified PDVSA last month it “is not going to take any more Venezuelan crude cargoes” from the state-run firm, said a PDVSA source who could not be identified because the information was not public.

That notification came after a more than 40-day standoff over a previous shipment. In July, a Venezuelan heavy oil cargo intended for PBF sat off Louisiana awaiting a letter of credit to complete the sale. The tanker discharged in August.

Neither company would say whether the agreement is terminated. The Parsippany, New Jersey-based refiner declined to comment on “business confidential information.” PDVSA did not respond to a request for comment.

PBF has not directly purchased oil from PDVSA since early September, according to Thomson Reuters trade flows data. But the refiner has bought Venezuelan crude from intermediaries in recent months, the data say.

Intermediaries currently working with Venezuela are traders and oil firms who purchase crude from PDVSA and assume the risk of any default in a transfer.

PBF also has increased imports of heavy oil from other nations, including Colombia.

The tanker Gold Sun arrived in Venezuela’s Jose port this week to load crude for PBF. Reuters trade flow data has not yet disclosed further details about the shipment.

PBF typically buys at least two 500,000-barrel cargoes per month from PDVSA, and through September was the fifth U.S. largest importer of Venezuelan oil, receiving almost 52,000 barrels per day (bpd) from different suppliers, according to the Reuters data.

A struggle to keep customers

In September, PDVSA also lost a supply contract for naphtha and natural gasoline to Brazilian petrochemical firm Braskem SA.

Falling output and oil-quality issues have contributed to PDVSA’s struggles to retain customers, and the situation worsened once its name appeared in a U.S. sanctions list.

The sanctions imposed in August do not stop U.S. entities from continuing trade relationships with PDVSA, but they ban new long-term financing for the company, its subsidiaries and the Venezuelan government. They also require business partners to notify the Department of Treasury about certain transactions.

The heightened level of scrutiny has not been welcome by U.S. refiners, according to the trading sources.

Venezuela in September sent less than 500,000 bpd of crude to the United States, its main destination for oil exports. The volume marked a 38 percent decline compared with the same month in 2016, according to the Reuters data.

The South American country has been looking for new buyers for its barrels since sanctions began, according to officials including President Nicolas Maduro. It recently started posting its crude prices in Chinese yuan, aiming to build a “currencies basket” to untangle banking operations and move off U.S. dollar-based sales.

Better without you

As PDVSA tries to expand its portfolio of customers, PBF and other U.S. refiners are looking elsewhere, too. Separate from its 33,000-bpd contract with PDVSA, PBF has started buying Venezuelan crude from trading firms, while negotiating with PDVSA over other forms of payment, according to the data and sources.

Eulogio Del Pino, Venezuela’s oil minister, said on state television in August that PBF “are the ones who have to pay ahead of time if they want us to load.”

PDVSA’s insistence that PBF prepay for cargoes hamstrung negotiations, the PDVSA source and one of the traders said, while the refiner suggested an open credit mechanism that would allow it to pay at least 30 days after delivery.

“There’s no reason for PDVSA to start demanding prepayments other than retaliation for the sanctions and lack of cash, but those problems should not be transferred to the buyers,” one trader said.

PBF has sought alternatives to Venezuela’s heavy crude oil to meet its refineries’ feedstock requirements. In September, it bought from Royal Dutch Shell a cargo of Colombia’s PB19 crude, a grade that is rarely sold on the export market, according to the Reuters data.

Disruptions in imports from Venezuela also have affected Phillips 66, the firm said in August. PDVSA’s supply to the U.S. refiner’s Sweeny facility in Texas has dropped by more than two thirds this year in part due to oil quality issues forcing the firm to cancel cargoes and request price discounts.

Phillips 66 has increased purchases of other Latin American heavy crudes for Sweeny in recent months, including Colombian, Mexican and Ecuadorian grades, according to Reuters data.

Optimism for 2018

Saudi Arabia, Venezuela, Kazakhstan optimistic on 2018 crude oil fundamentals

platts.com

Oil ministers from four major oil producing countries — Saudi Arabia, the UAE and Venezuela of OPEC, and Kazakhstan — said, after meetings in Astana, market fundamentals were pointing to a more bullish 2018 and agreed output cuts could be extended past their March expiry if conditions warrant.

Saudi energy minister Khalid al-Falih met with Venezuela’s new oil minister Eulogio Del Pino, and separately with Kazakhstan’s energy minister Kanat Bozumbayev, in the Kazakh capital Saturday, according to statements from the Saudi energy ministry.

Falih then met UAE counterpart Suhail al-Mazrouei, the Saudi ministry said in a statement Monday.

The officials “expressed satisfaction with improving market fundamentals, accelerated by the collective efforts of OPEC and non-OPEC producers under the Vienna Declaration of Cooperation [and] agreed that an extension of the declaration beyond March 31, 2018, may be considered in due course as fundamentals unfold,” the statement said, referring to the OPEC/non-OPEC production cut agreement.

All options were open in the voluntary rebalancing efforts, the producers were quoted as saying.

OPEC and 10 major non-OPEC producers led by Russia agreed last December to cut a combined 1.8 million b/d in output through June 2017 to rebalance the market and induce draws of oil in storage. This was subsequently extended to March 2018.

Saudi Arabia has led the way cutting production, with output in August at 10.01 million b/d, according to the latest S&P Global Platts OPEC survey released Thursday.

It averaged 9.971 million b/d over January to August, some 87,000 b/d under its allocation of 10.058 million b/d.

Venezuela produced 1.90 million b/d in August and averaged 1.947 million b/d over the same period, putting it 25,000 b/d under its allocation.

Kazakhstan’s crude and condensate output growth accelerated to 1.742 million b/d in July, 62,000 b/d above its commitment to bring output to 1.68 million b/d.

It has struggled to meet its obligations due mainly to increased production from Kashagan, which averaged 200,000 b/d in July, as well as the Karachaganak field. Output cuts at mature fields have been unable to help trim the country’s total production.

Despite the “gradual” ramp up of the giant Kashagan field this year, Bozumbayev was quoted as saying Kazakhstan was able to achieve more than its full commitment to its agreed production cuts in August by reducing output at other fields.

A similar production level is also anticipated for September, according to the statement.

As for the UAE, Mazrouei reiterated Abu Dhabi National Oil Co.’s commitment to cut crude allocations by 10% in September and October.

“The company will be notifying its customers and the market, on a monthly basis, of the actual changes to its lifting schedule in an effort to demonstrate transparency and enhance credibility around UAE’s conformity with its targeted production under the Declaration of Cooperation,” the statement said.