Venezuela's markets are in turmoil due to escalated US sanctions. According to CCTV, the country's main oil storage facilities and moored tankers are rapidly filling with crude oil, expected to reach maximum storage capacity in 10 days, at which point Venezuela's state-owned oil company may be forced to shut down some wells.
Furthermore, sources indicate that Venezuelan oil customers are demanding larger discounts and revisions to spot contracts from the state-owned oil company.
According to industry insiders, the discount on Venezuela's flagship Meré heavy crude oil shipped to China has widened to $21 per barrel below the benchmark Brent crude price, compared to between $14 and $15 per barrel last week. The main reason for the increased discount is the growing risk to tankers due to "war clauses."
An insider at the company said that if the terms of the deal remain unchanged amid increased risks for customers and shippers to ship oil out of Venezuela, PDVSA may face requests for the return of large quantities of cargo.
Political and energy analysts emphasize that continued turmoil in the local energy sector will severely damage Venezuela's already struggling economy and further pressure President Maduro, potentially leading to regime change.
Financial markets are also weighing this risk. Investors have recently been snapping up Venezuela's defaulted bonds, betting that the fall of the Maduro regime might bring hope for debt repayment. The country's sovereign bond prices recently surged to 33 cents, a 40% increase since early October. This is the highest price for Venezuelan government bonds since 2019.
Debt repayment hope
Some investors believe that Venezuelan bonds may be undervalued if the United States increases its military presence in the region surrounding Venezuela and ultimately forces Maduro to step down. Investors hope that a new government will restructure the bonds, allowing Venezuela to return to the global bond market after nearly a decade's absence.
Robert Koenigsberger, head of emerging market investment firm Gramercy Funds Management, said people are buying Venezuelan bonds or bonds issued by Venezuela's state-owned oil company because they see an opportunity for regime change.
However, analysts also pointed out some potential risks. There have been predictions that Maduro would struggle to withstand US pressure, yet he has remained in power. Meanwhile, the collapse of a chaotic government could trigger civil war rather than the orderly bond restructuring investors are hoping for.
Allianz Global Investors' chief economist Christian Schulz and portfolio manager Alexander Robey said earlier this month that the recovery value of Venezuelan bonds depends largely on how quickly the country's oil production can grow. Given the lengthy process of sovereign debt restructuring, a bond price of 40 to 50 cents might be the best-case scenario.
(Article source: CLS)
