In its latest weekly report, shipbroker Gibson said that “for those of us, who are involved in the tanker market, interest in Venezuela is not just a case of mere curiosity but also a prudent necessity, considering the importance of the country’s oil industry for tanker demand. The frequency, with which Venezuela appears in the international news headlines, has intensified notably over the past few months. Back in the summer, the election of the controversial Constituent Assembly and the resulting US sanctions, banning US institutions from dealing with refinanced Venezuelan debt issues, received wide international coverage. More recently, the focus has shifted to Venezuela’s colossal $150 billion foreign debt. Just over two weeks ago Venezuela missed a deadline to make $200 million in interest payments on two government bonds, translating in Standard & Poor’s formally declaring the first default. Around the same time, the Venezuelan president stated the country’s intention to restructure its foreign debt. Separately, the Russian Finance Ministry announced that Russia and Venezuela had signed a debt restructuring deal, allowing Caracas to make “minimal” payments to Moscow over the next six years to help it meet its obligations to other creditors”.

According to the shipbroker, “the latest developments highlight the severity of the debt situation, following the collapse of oil prices from over $100/bbl. Setting the politics and geopolitics aside, the economic challenges faced by Venezuela have direct implications on the domestic oil sector. The country’s crude production has been in steady decline over the past couple of years, largely due to the lack of investment, the shortage of available funds and ill-maintained production infrastructure. According to IEA data, crude output averaged just over 1.9 million b/d in October 2017, down by 0.55 million b/d or 22% compared to October 2015. The decline in crude production has had negative implications for Venezuela’s crude exports, although not to the same extent. Financial problems faced by the country also hit the domestic refining sector, where the lack of maintenance has led to a notable decline in domestic throughput volumes, reducing the downward pressure on international crude exports”.

Gibson added that “the decline in Venezuelan crude trade to the US is one of the biggest consequences of the economic and political problems faced by the country. Between January and August 2017, crude shipments to the US averaged 0.69 million b/d, down by 175,000 b/d compared to the same period in 2015. In addition, the EIA weekly estimates suggest that this trade has declined further in recent months, averaging just 0.5 million b/d since early September. Interestingly, Venezuelan crude exports to China have actually increased. During the first eight months of this year, shipments to China averaged 0.44 million b/d, up by 100,000 b/d compared to the same period in 2015”.

The shipbroker noted that “apart from direct trade implications, it is also reported by Reuters that PDVSA is increasingly delivering poor quality crude to its international customers, which is translating into repetitive complaints, cancelled orders and demands for discounts. There are also reports of logistical issues and disputes over payments. For tonnage that calls at Venezuelan ports, the above translates into additional, and at times extended, delays and sporadic cancellations. Despite the recent firming, oil prices are still notably below the level needed by Venezuela to balance its financial requirements. As such, the difficulties faced by the country at present are unlikely to disappear anytime soon. The recent debt restructuring with Russia will help to ease the most immediate pressures but it is unlikely to be sufficient to reverse the slide in domestic crude production and exports”, Gibson concluded.

Meanwhile, in the crude tanker market this week, in the Middle East, the shipbroker said that “VLCC demand continued to hit up against a solid wall of availability and Owners had no option but to discount further so that rates ended at little better than ws 55 to the East and ws 25 to the West with lower values payable for older units. Roughly halfway through the anticipated December programme now and unless something very surprising happens, the soggy environment looks set to remain in situ. Suezmaxes did little initially, but then enquiry picked up to prune tonnage lists and allow for some gentle re-inflation to ws 92.5 East and to ws 45 West with premiums over that for Kharg liftings. Aframaxes moved through a clear-out, but rates moved towards a lower 80,000mt by ws 100 to Singapore none the less. Perhaps the rebalancing will now provide a platform for a degree of rebuilding next week though”, Gibson concluded.

Nikos Roussanoglou, Hellenic Shipping News Worldwide