Rising Oil Prices No Help for India, Venezuela, or Canada

While rising crude prices may be pleasing to Middle Eastern countries whose economies badly need a boost, they're proving to be a notable problem for growing economies such as India; they're alsoproving to be no help to regulatory issues in Canada or the all but collapsed economy of Venezuela.

Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, told Bloomberg that "Higher global crude oil prices are net negative for the Indian economy in almost all aspects," adding that Brent crude at $75 per barrel could lower his growth estimate for India to about 7.3 percent from 7.5 percent for the year through March 2019.

Moreover, India's central bank believes that $78 oil would cut 10 basis points from its 7.4 percent forecast for gross domestic product and could increase inflation by 30 basis points; it should be noted that India, whose rupee is already Asia's worst performer this year, imports more than two-thirds of its crude requirements.

In Canada, Husky Energy Inc. this week throttled back first-quarter production in response to steeper discounts for Canadian crude; this came on the heels of rival oil-sands company Cenovus Energy Inc. halting all investments in new projects until the dispute between B.C. and Alberta over the construction of the Trans Mountain pipeline is resolved.

Although the Canadian Association of Petroleum Producers forecasts that bitumen and upgraded crude output may grow 11 percent to 2.98 million barrels per day (bpd) this year, the association warned that those supply gains will taper off to 2.5 percent next year and average less than 2 percent annually through 2030 as pipeline and regulatory hurdles curtail investments in the oil sands.

In the case of Venezuela, it's unclear whether anything but a radical change in governmental ideology would improve conditions in the Bolivian republic: according to two Venezuelan sources with knowledge of the matter, a grace period on Chinese loans has lapsed without a renewal, which might  deprive the country of $7 billion in oil revenue this year.

One of the sources said, "China maintains its position of not increasing its exposure to Venezuela and is adjusting conditions, given that the price of oil is now $20 per barrel above its level when the (grace period) was created."

Venezuela is lobbying for an extension but must make full payments in the meantime, and these payments are said to absorb an additional 305,000 bpd of Venezuela's oil production, which has fallen to a 33-year low this year.

All told, Venezuela and state oil company Petroleos de Venezuela SA are in default on nearly $50 billion in international bonds because they have failed to make more than $2 billion in interest payments.

Of the three countries, Venezuela's plight is the most troubling due to the social chaos its economy has caused; however, that didn't stop the Organization of the Petroleum Exporting Countries, of which Venezuela is a member, from pointing out earlier this year that its drastic decline in production may just be what the doctor ordered with regard to mitigating the global impact of skyrocketing U.S. shale output.