Connect with us

Business

Venezuelan Oil Being Sold to the United States at an Eight-Year Low Discount

Avatar

Published

on

Venezuelan Oil Being Sold to the United States at an Eight-Year Low Discount

Venezuela—now infamous around the world for its near-bankrupt state—is currently the third-largest supplier of crude oil to refineries in the United States. 

Although some speculate that its death throes are near, in order to hold onto its position and stake out its share against its main competitors—Canada and the Middle East—it is offering crude oil to the U.S. at the greatest discount it has offered in eight years.

In its Bid to Hold the United States Market, Venezuela is Underselling U.S. Domestic Oil

Venezuela is now discounting its oil to the point where a basket costs more than $12 a barrel less than the WTI Benchmark. 

Though for seven of the last ten years it has undercut the WTI Benchmark—going above it for only three—its current discount represents an eight-year low in that undercut.

The Difference in Average Discounts Between This Year and the Last Two is Remarkable

Average discounts below the West Texas Intermediate Benchmark in the past two years ($3.78 and $3.73 respectively) were less than half of the average discount this year ($8.44).

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”https://offers.thecapitalist.com/p/58-billion-stock-steal/index” link_target=”_blank” link_text=”Click Here To Find Out What It Is…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]This one stock is quietly earning 100s of percent in the gold bull market. It’s already up 294% [/ms_featurebox]

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

Domestic Production in Venezuela is on its Way Down and Will Probably Only Fall Farther

The state oil company, Petroleos de Venezuela SA, is financially overextended by $14 billion in bonds and is expected to cut its output by at least 4.4 percent this year. 

It is projected that it will only put out 2.3 barrels a day at maximum in coming months. 

Analyst Virendra Chauhan of Energy Aspects Ltd. opines that in the face of the cuts in both production and export, Venezuela is choosing to keep the business of its nearby neighbor—the United States—rather than continue exporting to the Asian market, which Iran and Iraq can easily service.

Exports from Venezuela are Rising, But Not Because of Higher Production or for Other Positive Reasons

Venezuela’s infrastructure is beginning to fall apart, and Petroleos de Venezuela SA’s refineries have been suffering power outages, only some of them planned. 

This crippling of refineries has been leaving more crude oil for export to the United States. 

Shipments from Jose increased by more than a fifth in April, which reflects the number of rolling blackouts the country has suffered in the throes of its collapse.

In fact, experts predict that with the demise of the infrastructure, even exports will begin to drop off, eventually leaving Venezuela with even less revenue and reducing its already shrinking economy even further.

The Top Five OPEC Members Whose Economies Need Oil to Recover (from Greatest to Least Need)

  • Libya
  • Venezuela
  • Algeria
  • UAE
  • Saudi Arabia

The Reasons Why Venezuela is Second on That List are Obvious

95% of Venezuela’s export revenue comes from crude oil—there is simply no escaping that fact. 

Oil is Venezuela’s greatest resource and export, and oil prices are suffering at the moment. 

Depression in oil quite literally could not have come at a worse time for Venezuela.

There is a serious chance that the country will default this year should oil not recover spectacularly or help arrive from another source.

Still, Even if Oil Made a Miraculous Recovery, Would it be Enough to Save Venezuela?

According to RBC Capital Markets, Venezuela would need to be able to sell oil at a staggering $121.06 a barrel to balance out the yearly budget alone.  Besides being an occurrence improbable enough to score a place in a Douglas Adams’s book, oil prices reaching that point would not solve Venezuela’s political problems, or fix its collapsing infrastructure.

 Venezuela’s problems run deeper than oil, and the world is more than aware of it.

The Washington Post stated in a recent article that it is basically a toss-up whether Venezuela’s economy or Venezuela’s political system will collapse first. 

A company called PKVerleger LLC has set aside a portion of its website and named it “VenWatch” so the world can witness one short entry at a time what a train wreck Venezuela and the oil industry have become.

So Where Does This Leave the Situation?

There is no denying that Venezuela is in terrible trouble—as a country, as a political power, as an economy, and as an oil supplier. 

If the situation is not ameliorated, a total collapse would seem to be a certainty. 

However, according to Business Insider, experts were predicting that the country would fall all the way back in 2014, and its still here.

No matter how grim it gets, Venezuela still sits on the largest oil reserves in the world.  

It is obviously still fighting—as evidenced by selling crude oil to the United States at such a low price—and asking for international assistance with the electrical power issues. 

Venezuela may be down, but it’s not out of the fight yet.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Bank of America Warns: ‘Deepest Recession on Record’ Headed Our Way

Avatar

Published

on

stock market graph representing negative economic outlook

Bank of America released its latest economic outlook, and it’s absolutely frightening.

The bank predicts that the US economy stands at the beginning of three straight quarterly declines. It expects Q1 to shrink by 7%, followed by a 30% decline in Q2 and a 1% drop in Q3.

The bank says Q4 will see the return of a growing economy. They, however, said that this will only come after overcoming unimaginable pain. “We forecast the cumulative decline in GDP to be 10.4% and this will be the deepest recession on record, nearly five times more severe than the post-war average,” the bank’s analysts wrote. The report goes on to say that although they expect consumer spending to perk up in Q3, the effects of the coronavirus outbreak will linger as consumers “face job cuts and a significant negative wealth shock.”

Unfortunately for many of us hoping for a quick recovery, Bank of America isn’t alone in their pessimism.

Lowering Expectations

The Congressional Budget Office also lowered its expectations for economic growth through the end of the year. Revised figures now show second-quarter GDP declining 7% with a 10% unemployment rate compared to our current 3.5% unemployment rate.

“CBO expects that the economy will contract sharply during the second quarter of 2020 as a result of the continued disruption of commerce stemming from the spread of the novel coronavirus,” CBO Director Phil Swagel said in a post on the agency’s site.

Fitch Ratings also has a troubling economic outlook for the rest of the year. In its latest research report, the company states “A deep global recession in 2020 is now Fitch Ratings’ baseline forecast according to its latest update of its Global Economic Outlook (GEO) forecasts.”

In just 10 days since its last report, the company has revised its global GDP estimates for the year. It went from a modest 1.3% growth to a 1.9% decline. “The speed with which the coronavirus pandemic is evolving has necessitated another round of huge cuts to our [gross domestic product] forecasts,” the company added.

Here in the US, Fitch says the shutting down of the economy to slow the spread of the coronavirus will result in an “unprecedented peacetime” GDP decline of 7% to 8% in Q2. Alternatively, it may also result in a 28% to 30% decline on an annualized basis.

Negative Economic Outlook

Investors should also prepare for another drop in the market, says a hedge-fund manager. He correctly predicted the impact the coronavirus would have on the stock market and the economy in the US.

“If you go back and look at history, there are nine times that the market has sold off about 30% or so since the 1920s,” said Dan Niles, who runs the Satori Fund. “You get one of these every 10 years or so and if you look at every one of them, you always get these bear market rallies.”

Niles says that he sees another major drop headed our way. He says that valuations are still well above historical norms, even after the recent pullback.

“Just to get to average, you would have to have the market go down 30%,” he said. “It is very easy to figure out the market probably goes down 30% before we’re even near fair valuation.”

And he says don’t expect a quick recovery, either.

“I sort of laugh when I hear people talking about a V-shaped recovery because we are going to have at least 10% unemployment, my guess is closer to 20% before all of this is said and done.”

Up Next

Continue Reading

bank

Stocks Rally as Oil, Jobless Claims Rocket Higher

Avatar

Published

on

Stocks Rally as Oil, Jobless Claims Rocket Higher

The stock market rally continued yesterday with the Dow Jones Industrial Average jumping 2.24%, the S&P 500 gaining 2.28% and the Nasdaq up 1.72%.

Investors felt optimistic after President Trump tweeted that he had spoken with Saudi Arabian Crown Prince Mohammed bin Salman. Many were hoping that both Saudi Arabia and Russia were willing to end the price war and mutually agree to cut production by at least 10 million barrels per day.

“Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” Trump tweeted.

However, some experts are doubting the reality of cutting production by such a significant amount.

Edward Marshall, a commodities trader at Global Risk, told The Wall Street Journal, “It’s physically impossible for Saudi Arabia and Russia to get 10 million barrels a day off the market—they’d burst their onshore storage and fill every ship in sight.”

News also broke that Saudi Arabia called for an emergency meeting of OPEC and other oil-producing countries. The country called for a meeting to talk about how they can stabilize the oil market. Prices have been in freefall since the last meeting ended without a production agreement beyond April 1.

This was enough to send oil prices rocketing higher. West Texas Intermediate crude gained as much as 34% intraday before settling at $25.32 per barrel, a 24.7% jump. This is its largest single-day percentage gain in history.

Even with prices moving higher, it may not be enough to prevent bankruptcies in the oil and gas sector. This wave of bankruptcies was kicked off by shale driller Whiting Petroleum Corp. on Wednesday.

Jobless Claims Set Record

The market’s rally yesterday came in spite of some very bad news early in the day. Initial jobless claims for the week ending March 28 came in at 6.6 million. This figure is nearly double the previous week’s then-record of 3.2 million.

To put this number in a historical perspective, prior to the last two weeks, the previous record number of claims in a single week sat at 665,000 in March 2009 during the Great Recession.

To put it simply, this week’s initial jobless claims number was equal to the total claims filed during the entire Great Recession.

Chris Rupkey, chief financial economist for MUFG Banks, wrote in an email, “We knew that massive job losses were coming because of reports that many workers were unable to file a claim for benefits even after waiting on line for hours. Everywhere you look Washington and state governments were not prepared for the rapid spread of the virus and the devastating damage that would be done to the economy if businesses were shut down and workers sent home.”

He added “In a normal recession, job layoffs build over the many months of recession until they peak. In this pandemic-based recession, the job losses are immediate where the economy’s weakest hour is right now.”

Why was the market able to rally despite historically bad jobless claims?

JJ Kinahan, chief market strategist at TD Ameritrade, says it’s possible that the market knows it’s going to get worse. He also mentioned that this number won’t seem as bad in the coming weeks.

“Overall this is a little bit of a victory in and of the fact that it was such a bad number and the market did kind of shake it off. It is also the market preparing for a lot more bad numbers.”

Up Next

Continue Reading

Aircraft

American Airlines Seeks $12B in Coronavirus Rescue Funding

Avatar

Published

on

American Airlines seeks $12B in coronavirus rescue funding

American Airlines is seeking $12 billion in loans and grants from the U.S. government, and says it won’t furlough employees for the next six months during the coronavirus health crisis.

In a memo sent to employees from CEO Doug Parker and President Robert Isom, the U.S. carrier said it will seek the funding as part of the $50 billion pot set aside for airline industry bailouts that’s included with the $2.2 trillion economic relief bill passed by Congress and signed by President Donald Trump last week.

Parker and Isom said, with the government help, they’re confident American will “fly through even the worst of potential future scenarios.”

To receive the rescue funding, carriers must not furlough workers or cut their pay rates through Sept. 30. It allows for equity stakes for the federal government and requires carriers to maintain certain air routes.

American is the world’s largest airline by fleet size, passenger traffic and revenue passenger miles. It and other airlines are offering partially paid, voluntary leaves of absence to workers as traveler demand has evaporated due to the pandemic. Three out of every four Americans are presently subject to municipally ordered lockdowns.

Monday, American said it’s extending no-fee travel changes for flyers who bought fares through April 30.

Also Monday, low-cost carrier Spirit Airlines said it’s canceling all flights to and from New York, New Jersey and Connecticut after the Centers for Disease Control and Prevention warned against all non-essential travel in the region.

Spirit said it’s suspending service to New York City’s LaGuardia Airport, Newark, N.J., Hartford, Conn., and Plattsburgh, N.Y., through at least May 4.

Copyright 2020 United Press International, Inc. (UPI). Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI’s prior written consent.

Continue Reading

Trending

Copyright © 2019 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.