The price of the OPEC basket of thirteen crudes was at $27.31 per barrel, at the close of Thursday, March 19; $3 less than yesterday’s price. This price means a drop of $25 per barrel from the price of $51.75 per barrel, quoted at the last OPEC meeting, according to the OPEC Secretariat’s report.
The Brent has lost half of its value in the last fifteen days; however, on Thursday 19 it increased by 9.88% to $28.46 per barrel. Likewise, the WTI reference increased by 10.80% to $25.75 per barrel. According to the reports, this increase was achieved by the stimulus measures applied by the Central Banks in the world; however, it is estimated that it is temporary since the effects of the crisis generated by the coronavirus are not yet reversed, and in any case may worsen.
However, as of today, March 20, some recovery, though modest, of the price of all the markers of the oil market is noted, above all because of the action of buying cheap oil for the strategic reserves of the large industrialized economies, as well as the expectation of massive economic aid in the large economies of the Eurozone and the United States, and the announcement that China, the second largest economy on the planet, is beginning to retake normality as it emerges from the peak of the COVID-19 crisis.
The EIA, in its monthly report, presents that world demand for oil in 2020 as reduced by 1.1 million barrels a day for the first time since 2009. The increase in non-OPEC supply is 2.1 million barrels per day in 2020, and the contraction in demand reduced OPEC oil demand to 27.3 million barrels per day.
After the OPEC and non OPEC countries meeting, the price of oil is still on a downward trend due to both the price war between Saudi Arabia and Russia, as well as the drop in the world economy, travel restrictions and lower industrial activity due to the COVID-19, which has led to a drop in the price and a collapse of the aviation fuel and gasoline markets.
The reports of Bruce Kasman, head of global economic research at JP Morgan, estimate that the first half of 2020 faces a breakdown of global markets. The financial crisis due to the COVID-19 pandemic and its effect on the economy, is still developing, only contained to some extent by fiscal measures and the injection of large amounts of money by both the European Central Bank and the US Treasury Department. Experts consider that the fall in the value of the stock market shares is unprecedented, so it is still not clear what measures will be taken to contain this situation.
However, the fall in the real economy, due to the suspension of economic activity and restrictions on movement and trade have affected the supply chains for the industrial sector, as well as the closure of large companies and factories worldwide, such as the announcements of the major car producers Ford and Chrysler, of closing their production in North America. On the other hand, a strong impact on employment is expected. Some analysts estimate a drop of up to 20% in the US and a global loss of at least 25 million jobs.
The now called «Coronacrash» has had as an economic response of injecting state resources into the economy to solve the crisis, fiscal measures in the industrial economies, Eurozone and the United States, as well as direct aid to the population and companies, defense of employment, support to small producers and support measures and acquisitions of large companies by the state, such as the announcement made in Italy to acquire Alitalia to avoid its bankruptcy.
Although China was the epicenter and origin of the COVID-19 pandemic, effective decisions and drastic quarantine measures, as well as the mobilization of massive scientific and technological resources to attend to the cases that occurred in the country, have managed to get out of the peak of the crisis and are now reporting no more cases of the virus originating in the country. This indicates that China is beginning to recover from the virtual paralysis of its industrial apparatus, as reflected in an unprecedented drop of 17% in its industrial activity since the beginning of the crisis.
China’s response, and its offer of massive scientific aid and medical supplies to other countries now facing the pandemic crisis, such as Italy, is giving this country leadership at the global level despite criticism for its lack of transparency at the beginning of the COVID-19 emergence. Likewise, for Venezuela, the first shipment was received yesterday from a supply channel that will be continuous, for the delivery of medical material that the Venezuelan health service does not have.
The Chinese leadership seems effective in dealing with a crisis of these dimensions, especially in light of the uncoordinated responses of the European Union, the United Kingdom and the United States. Hence President Trump’s attack, calling COVID-19 the «Chinese virus», is a clear demonstration of the US administration’s concerns in the face of its strategic confrontation with China.
The Venezuelan oil industry remains practically paralyzed. The government’s last Intervention Commission has not yet shown a plan to relaunch oil production and any results from its work beyond the arrest and displacement of managers placed in key positions by the management of General Quevedo, who is still in office despite the thunderous failure of his management at the head of PDVSA with a dramatic drop in oil production.
The domestic fuel market is facing a high level of shortages, mainly due to the stoppage and loss in operational capacity of the Venezuelan refinery system, which, despite having a production capacity of 1.3 million barrels per day at the end of 2013, is not producing enough fuel to supply the domestic market. Not only the refineries have lost their management and leadership capacity (most of the managers in the Venezuelan refining system are imprisoned or displaced by the military and government acolytes), but the refineries are also not receiving oil to process.
Venezuela’s gasoline market has become increasingly scarce. According to Refinitiv Eikon, 71,250 barrels per day have been unloaded in Venezuelan ports, which corresponds to less than 50% of what was received in January and February on the same dates. Reuters reports that another 50 thousand barrels a day are waiting to be unloaded; however, this volume is far below the internal demand for fuel, which is approximately 300 thousand barrels a day. Lines are prohibited at gas stations and only «authorized vehicles» have access.
As for the sale of oil, the selling price of Venezuelan crude is not clear. One of the first measures taken by Maduro in one of its interventions at PDVSA was to close the oil sales control office in Vienna, as a result of which, the sales price of crude cannot be known and oil sales were abolished using price formulas. What is known in the oil and «trader» market is that massive discounts, between 15 and 25 dollars per barrel, are being given to Venezuelan oil, which, in light of the current market price, results in discounts of between 50 and 80% of the price, which is unfeasible from an economic point of view.
On the other hand, commercialization activity is in the hands of private operators without experience in it and in the hands of transnationals that are using the exceptions in the North American sanctions to take advantage of receiving Venezuelan crude oil as payment of debts or imports.
Venezuela and COVID-19
The number of detected cases of COVID-19 in Venezuela has increased to 42, although it is feared that there are many more cases in the country. However, there are no statistics from the health agencies, nor have the respective tests that would give indications about the reality of COVID-19 in the country been carried out. Delta Amacuro State Governor, Lizeta Hernández, who is also a physician, reports 21 cases in her state alone, located in the southeast of the country, on the border and one of the most remote and unattended. The governor of the state of Táchira in the west of the country, which borders Colombia, also reports some cases in this region.
The government has closed the borders are closed, in addition to the quarantine already established. It is not very clear what the actions will be in case of an increase in cases, as has been seen in the rest of the countries. The streets are militarized, but it is still not clear what the strategy will be to address this crisis in the Venezuelan health system.
On March 19, the United Nations published the first report of COVID-19 in Venezuela. Among the response actions are working with the Ministry of Health which has designated 47 hospitals for patient care in 24 states, requiring support to ensure the functioning of critical services, including medical supplies and infrastructure such as water, sanitation and hygiene. PAHO/WHO has delivered 2,000 diagnostic kits, 150,000 medical masks, and 200 personal protection kits.
In economic terms, in addition to the request of 5.000 millions dollars by the government made to the IMF and rejected by the organization, it has decided, in the midst of the COVID-19 crisis, to increase taxes by 30 units, increasing the country’s tax unit, as well as a significant increase in some public services, such as sanitation and telecommunications. The government is going in the opposite direction of the positions of most countries in the world, to support their productive apparatus and citizens in the midst of this crisis of the pandemic that has also caused a drastic fall in oil prices and the world economy.