Venezuela Puts $4 Billion China Loan in Foreign Reserves, Signs Major Oil Deal with Russia

Santa Elena de Uairen, November 19th, 2014. (venezuelanalysis.com)- In a television address yesterday evening, Venezuelan president Nicolas Maduro indicated that a $4 billion loan from China would be added to the country’s international reserves. Meanwhile, as oil prices to continue to slide and with eight days to go to the next OPEC meeting, Venezuela has signed a major deal with the largest exporting non-OPEC member, Russia.

“Four billion dollars from the China Fund just entered belonging to the new tranche of financing, and I have ordered it placed in the strategic reserves fund to be counted as part of international reserves,” Maduro said Tuesday.

The China Fund, created in 2008, has funneled billions of dollars into state projects in Venezuela in recent years. Venezuela ships 524,000 barrels of crude oil and derivatives to China per day, nearly half of which goes toward paying the loans. That amount is expected to increase to one million bpd by 2016.

This latest move to place this latest loan in foreign reserves is an attempt to improve transparency, the senior Andean economist with Bank of America, Francisco Rodriguez, told Bloomberg yesterday.

“It makes it clear that the money could be used for debt service,” said Rodriguez.

Since September, investors have gone through cycles of panic as Wall St analysts cast doubt on the oil nation’s ability to service its bonds. On November 14th, the amount of cash in Venezuela’s foreign reserves had reached an 11-year low of $19.4 billion.

However, Maduro hinted that the latest boost is a sign of things to come.

“There will be more good news on the financing of our reserves, not just these $4 billion, but other things that we are working on,” he said yesterday evening.

Multi-Polar Oil Diplomacy

On Monday, Venezuelan Foreign Minister Rafael Ramirez met with Russian Energy Minister Alexander Novak. Russia is the largest oil exporter to not form part of the Organization of Petroleum Exporting Countries (OPEC), whose member states will meet in Vienna on 27 Nov.

Novak told reporters yesterday that he and Ramirez discussed how to freeze the downward trend, a conversation he will relay to the Russian government to create a proposal for the next meeting with Venezuela; two days before the OPEC summit, also in Vienna.

Ramirez’s visit to Moscow was the latest in an international tour meant to seek solutions for the tumbling prices. The foreign minister also visited Algeria, Qatar, Iran, and Libia this month.

President Maduro recently warned that the drop in Venezuelan crude, diving from $99 per barrel in June to about $70 this week, has caused a 30 percent loss in revenue. Oil makes up 95 percent of the nation’s export earnings.

The shift comes from a boom in the United States and Canadian output, which has flooded the market with cheap oil.

The US practice of hydraulic fracturing, or fracking, has contributed to this upsurge by permitting oil companies to access new reserves of oil and natural gas previously out of reach. Stateside, analysts anticipate a boost for the consumer economy, as low-priced combustible within the US will free up more cash for the holiday season.

Meanwhile Venezuela, Russia and Iran have been the hardest hit by the falling prices, prompting Maduro to accuse the United States of overrunning the market to disrupt its those economies.

Ecuador, the only other OPEC member in Latin America, will reportedly support Venezuela’s demand that the cartel heed its output ceiling of 30 million barrels a day.

While visiting Iran, Ramirez told a local news agency, “We believe that the prices are at a very low level and instability in the market is in no one’s interest.”

The former oil minister also said, in terms of his country’s economic continuity, “a hundred dollars per barrel is the desirable price for Venezuela.”

A Monday report from the Credit Suisse Group concurred that for the petrol nation “to continue paying its debts at the present rate of imports and oil production,” the country needs $97 a barrel.

However, while presenting the 2015 federal budget last month, Venezuelan finance ministers claimed that calculations were made estimating the price of crude at $60 a barrel, for caution’s sake.

While in Moscow, Ramirez also met with the chief executive of the predominately state-owned oil giant Rosneft. The Russian company signed a contract with Venezuelan state company PDVSA for the purchase of 1.6 million tons of petroleum and 9 million tons of derivatives of crude over the next five years. An advanced payment of $2 million was arranged.

The two companies have signed similar contracts in the past, and Sechin was present at the 2013 naming ceremony of an important Moscow street after Hugo Chavez.

The oil executive will also attend the pre-OPEC meeting in Vienna on 25 Nov, though other attendants have not yet been confirmed.