Missed Debt Payments and Crude Export Quality Complaints Plague Venezuela

by Ship & Bunker News Team
Monday October 23, 2017

Having missed two bond payments of $237 million over the weekend, Venezuela's total unpaid bills are now $586 million this month - and to make matters worse for the rapidly collapsing republic, state-owned oil company PDVSA is reportedly shipping crude amid growing quality issues.

The news comes just days before the first of two deadlines without grace periods: $841 million in principal plus interest is due on Friday on a bond issued by PDVSA, and the collateral against the bond is Citgo, PDVSA's Houston-based refining and retail subsidiary.

This will be followed on November 2 by a nearly $1.2 billion PDVSA bond that is maturing.

Russ Dallen, managing partner at Caracas Capital Markets, said of Venezuela's escalating woes, "I don't see how any person who's involved in Venezuelan debt can be anything except concerned, except for those who have credit default swaps.

"This weekend, there's either going to be a lot of bond holders and traders drinking champagne, or there's going to be a lot of stressed fund managers."

As for quality control at PDVSA, Reuters reports that the beleaguered oil giant's shipments are "soiled with high levels of water, salt or metals that can cause problems for refineries."

This has resulted in complaints and cancellations of purchases: U.S. refiner Phillips 66 cancelled at least eight cargoes in the first half of the year and demanded discounts for other shipments; refiners in India and China have also lodged complaints.

An unnamed PDVSA worker said, "We're refitting chemical injection points, recouping pumps, and storage tanks; but without chemicals, we can't do anything."

Huffington Post summarizes Venezuela's situation succinctly by stating, "Output is falling, cash is drying up, and oil workers have fled the country because of food shortages and violence."

Plus, Venezuela is increasingly irrelevant on the global market, as evidenced by countries such as Iraq, whose oil minister on Monday met with BP in the hopes the British oil major will help increase output from Kirkuk oilfield to more than 700,000 barrels per day.

Earlier this year, RBC Capital Markets suggested that a collapse of Venezuela's crude production would serve to remove much-needed supply from the market, boost prices, and save the Organization of the Petroleum Exporting Countries' reputation as it struggles to bring global supply and demand back to a normal ratio.