Morgan Stanley’s Paolo Batori has a pretty fantastic presentation on the “Venezuela Paradox”: Why oil prices are surging, but the country’s financial situation is rapidly deteriorating.
The big chart below shows what’s happening, but what’s interesting is why.
Batori explains a few reasons for this:
- Import costs are rising along with the price of oil. The same factors causing revenue to grow are causting costs to grow.
- Oil production figures are declining: Due to mismanagement by the state, the country is producing less and les soil.
- More and more, it’s selling oil not for cash, but in exchange for various cooperation agreements with other Latin American nations. Also: Another 8% of its oil goes to China in exchange for loan agreements.
- Meanwhile, as the price of oil has surged, the state-owned oil firm Petróleos de Venezuela has been obligated to give more and more for social expenses (wealth distribution) this hampering its ability to invest.
Photo: Morgan Stanley: Paolo Batori
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