Venezuela Cuts $20 Billion China Debt With 200,000 Barrel Shipments of Oil

[Judi Lynn]

Venezuela Cuts $20 Billion China Debt With 200,000 Barrel Shipments of Oil
By Daniel Cancel and Corina Rodriguez Pons - Aug 4, 2010 8:36 PM CT

Venezuela, the largest oil producer in South America, is shipping 200,000 barrels a day of oil to China to repay $20 billion of debt borrowed from the Asian nation to finance power, agriculture and technology projects.

The OPEC nation, planning to ramp up China shipments to 1 million barrels a day by 2012, is selling oil at market prices to repay the 10-year loan, Oil Minister Rafael Ramirez said yesterday in an interview in Caracas. Shipments to repay the cash represent half Venezuela’s daily crude exports to China.

“We’re diversifying our export markets; our international policy is going in this direction,” Ramirez, also President of state oil company Petroleos de Venezuela SA, said at his office beneath paintings of Cuba’s Fidel Castro and Che Guevara. “We don’t cut prices in any of our international agreements.”

Venezuela is tapping Asian nations that need crude to fuel growth in their fast-growing economies for cash. President Hugo Chavez is seeking funds to restructure the country’s economy to provide more jobs for the poor and address power shortages.

More:
http://www.bloomberg.com/news/2010-08-05/venezuela-cuts-20-billion-china-debt-with-200-000-barrel-shipments-of-oil.html

[naaman fletcher]

1. article is meaningless

it doesn't say how many barrels are being sold to satisfy the debt.

[Wilms]

2. Actually, it does.

The snips alone give the bits, but a little math and looking up market price is in order.

[naaman fletcher]

3. Really?

I can't find it.

[dipsydoodle]

4. Depends on the price of oil.

200,000 / day @c.$80 / barrel is $16 million a day. If oil stayed at that price would take about 3 1/2 years to repay the debt - less if oil went up to c. $100 / barrel.

Overall the total number of barrels is obviously a function of the price of oil.

[bherrera]

5. It is an easy estimate

But the price is lower, because it costs a lot of money to ship the oil to China - maybe $5 to $10 per barrel. Also, the price of Venezuela's oil is lower, because it is lower quality. I am not an expert, but I think they may be receiving $65 per barrel. If this oil is given to China to pay for a debt, then the Venezuela national income is lower by the same amount. This is not good for their economy.

[dipsydoodle]

6. not good for their economy ?

How else would suggest they pay the debt ? They are getting full market price for the oil and no mention is made of who pays shipping anyway.

[bherrera]

7. I think the seller pays for shipping

It is the way the market works with all commodities. This is reflected in a lower bid price for the oil being sold. How would I suggest they pay the debt? They should sell the oil to the closest market which bids top prices, and pay the Chinese with cash. The use of barter trade is not a good idea, it's highly inefficient. This appears to be guided by political considerations. The Venezuelans are aiming to reduce sales to the most natural market for their oil, the USA. By doing so, they pay a heavy price. Not very intelligent, I think.

[Judi Lynn]

8. If this business were not profitable, they wouldn't bother with it. n/t

[ChangoLoa]

9. I would think that avoiding a monopsony is rather a good thing

Especially if we're talking about oil. Where do you see the barter here? It's still money for oil, isn't it?

The problem I see here is the external debt increasing at high speed since the oil shock ended.

[bherrera]

10. It is a form of barter

Not being an expert, all I did was consult the OPEC web page and observe their statistics as shown in their monthly reports, and my analysis may not be professional, but it does look like the Venezuelans are not very smart in this business of selling oil.

If they borrow money and they pay it with oil, it is a form of barter. A pure loan would have the borrower repay the loan with cash. The oil could serve as colateral, but delivery isn't required. If we consider the enormous distance between Venezuela and China, it is evident this is a bad business idea for Venezuela. The USA isn't a monopsony because the market has dozens of large buyers which compete in secret bids to buy oil. Thus saying the USA is a monopsony is not correct.

I think there is a lot of emotion in Venezuela in this area, which then leads to the carrying out of an inefficient marketing policy for their oil. This is reflected in the insistence in selling oil to a customer located so far from Venezuela. There is a potential difference, maybe China, Inc. is using Venezuela as a foil to negotiate lower prices from the Middle Eastern suppliers. But I doubt it, because the Venezuelan volumes are too small to impact the market.