Americas News
Oil Price Plummet Could Cause Venezuela to Default in Early 2016
With Venezuela's crude price plunging 17 percent to an 11-year low of $29.17 last week, traders believe the country will have difficulty meeting its debt obligations and could default as early as February, Bloomberg reports.
According to the report, traders see a 71 percent probability that the country, which relies on oil sales income for almost all of its hard currency, will default in the next 12 months, up from 61 percent the day before the Organization of Petroleum Exporting Countries (OPEC) failed to secure a production limit agreement at its December 4 meeting.
The Venezuelan government has $5.2 billion of bond payments that are due in the New Year, as well as $5.5 billion to service the debt of Petroleos de Venezuela S.A. (PDVSA), which handles almost all of the country's exports; it reportedly may need to sell $20 billion in gold or other assets to stay afloat in 2016.
In a report to clients, Barclays Plc analysts wrote, "The latest decline in oil may have undermined government confidence, putting even this payment at risk."
Phillip Blackwood, a managing director at EM Quest, remarked, "I don't think many people in the market believe they'll continue to service their debt in the medium term with oil at $35.
"It's now a question of whether they get through 2016. No one's looking much beyond that, and even that's a tough call."
These prognostications fall in line with those made by ESAI Energy LLC, which in August noted that a debt payment default in 2016 or 2017 would trigger a major disruption in oil and products supply - but added that "a sinking Venezuela could lift many other boats."
