Caracas nervously awaits Opec deliberations

Venezuelan energy minister Eulogio Del Pino traveled to Moscow today along with Algerian oil minister Noureddine Boutarfa to press the case for Opec and non-Opec producers to restrain production.

The Venezuelan government has a lot riding on the outcome of a 30 November meeting in Vienna, where Opec producers and non-Opec Russia hope to strike an agreement to freeze or cut production. Other non-Opec producers such as Mexico and Brazil are watching from the sidelines. The outlook for a deal is mixed so far.

"What happens during the next two days is not only important for oil prices, but for the future of the world economy," Del Pino said in Algiers before departing for Moscow.

Venezuelan President Nicolas Maduro has repeatedly insisted on the need for a broad output reduction deal between Opec and non-Opec producers in order to raise oil prices to a "fair" level for producers and consumers.

Maduro says $60-70/bl is a fair price range that would revive over $300bn of global capital expenditures that were shelved when oil prices collapsed in 2014.

A deal that is sufficiently robust to sustain higher oil prices appears to be the Maduro government's best hope for boosting Venezuela's oil export revenues at a moment when state-owned oil company PdV's crude output is falling.

Venezuela's crude production dropped 338,000 b/d or almost 13pc over the first 10 months of 2016, from 2.654mn b/d at end-2015 to 2.316mn b/d in October, according to official figures communicated directly to Opec by the energy ministry and published in the November issue of the group's monthly market report.

Venezuela's official crude output in October was 18,000 b/d below September's reported production of 2.334mn b/d.

PdV oil exports generate 96pc of Venezuela's annual hard currency revenues, according to the Central Bank. Calculated on an annualized basis at PdV's current year-to-date average export price of $34.21/bl, a crude output decline of 338,000 b/d totals almost $4.2bn of lost potential export revenues urgently needed by the government to rescue the crippled economy and fend off popular unrest spawned by acute shortages of basic goods and services.

Venezuela has continued servicing its foreign debt on time despite an over 61pc plunge in PdV's average oil export price from $88.42/bl at end-2014 to $34.21/bl for year-to-date 2016 as of 25 November. PdV's weekly average export price closed at $39.83/bl for the week ending 25 November, the energy ministry said.

Venezuela's government and PdV have jointly paid foreign creditors over $60bn of principal and interest over the past 20 months, Maduro said in a 25 November televised broadcast, adding that Venezuela has never missed a debt payment.

But PdV was late paying up to $404mn of bond interest earlier this month, invoking a 30-day grace period. Del Pino blamed payment agent Citibank for delayed interest disbursements to bondholders. Citibank has not commented.

Whatever the cause, the delay drew attention to PdV´s default risk. The central government and PdV are scheduled to pay principal and interest totaling over $14bn in 2017, an amount almost 30pc greater than the central bank's current remaining hard currency reserves of $10.8bn.

The government's 2017 budget is based on an average export price of $30/bl and, for the first time in any official central government budget, does not include estimated crude production. The low base oil price and the omission of a crude production estimate suggest that government planners anticipate weak oil prices will persist in 2017 and PdV's upstream output slide will continue.

Venezuela's gross domestic product is expected to shrink by over 8pc in 2016, central bank economists said. The bank unofficially estimates annualized inflation through end-October 2016 at over 700pc and accelerating.

Independent economist Orlando Ochoa forecasts that inflation may reach an annualized rate of 1,000pc in first quarter 2017 and possibly hit 2,000pc by end-2017. Venezuela's currency has become literally worthless, with a black market rate of over Bs3,480/4 today compared with a government-controlled "essential goods" exchange rate of Bs10/$.