Posted on 02/02/2016 5:22:49 AM PST by thackney
The plunge in the price of oil is causing more investors to bet that Venezuela will default on its $120 billion pile of foreign debt, an event that would trigger a messy battle over the country's oil shipments and deepen its economic and political crisis.
Despite Venezuela's worst economic slump since independence from Spain, the socialist government has continued to pay bondholders on time. President Nicolás Maduro this week reiterated the country's intention to honor its debt.
Few investors doubt Venezuela's willingness to pay. In recent years, it has paid bondholders partly by drastically reducing the amount of dollars it uses to import goods, adding to widespread shortages. What's increasingly in doubt, however, is the country's ability to pay.
"Venezuela is in an economic hole; the oil prices are just aggravating the mess," said Anders Faergemann, who manages $20 billion of emerging-market fixed-income debt, including Venezuela's, at Pinebridge Investments in London.
The price of oil--which accounts for 96% of Venezuela's export earnings--recovered slightly on Thursday to nearly $30 a barrel, but it is still down sharply on the year. Oil futures signal the price will remain at about $32 a barrel for the foreseeable future. That's a far cry from the $100-plus levels that Venezuela enjoyed for years.
Venezuela's heavier oil fetches even less on international markets and is down to about $23 a barrel, near its break-even production point of about $17 to $18 a barrel.
A default in 2016 "is becoming increasingly difficult to avoid," said Barclays economist Alejandro Arreaza in a report on Venezuela this week. If oil stays at $32 per barrel, Mr. Arreaza estimated that Venezuela will need to use 90% of its oil income this year just to meet its obligations, including sovereign debt and money owed to China.
(Excerpt) Read more at wsj.com ...
Some interesting information: http://www.globalpetrolprices.com/Venezuela/gasoline_prices/
A massive subsidy they cannot afford.
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