Universidad Bolivariana De Venezuela

Ingles II
MARIFER MARCANO 22.968.489
WHAT DO YOU THINK ABOUT HOW WILL BE THE CONSEQUENCES FOR OUR OIL
AND GAS INDUSTRY IN THIS PERIOD OF TIME IN WHICH WE ARE FINANCIAL
LOCK AND CROSSING A GLOBAL PANDEMIC?
Oil prices fell to the lowest level in 18 years, as declining energy demand in a global
economy hit by efforts to contain the coronavirus pandemic: millions of quarantined
workers, closed factories and minimal fuel consumption, especially by international
airlines, which are on the verge of bankruptcy.
The breakdown in the price of oil contributes to the rupture between Russia and Saudi
Arabia, which has as a consequence the increase in supply amid the decrease in demand.
In this environment, the price of Brent crude - a benchmark in Europe - fell 13% to 24.88
dollars a barrel, the lowest level since May 2003, and the West Texas Intermediate (WTI)
fell 24% up to $ 20.37 a barrel, its lowest level since February 2002.
OPEC, under the leadership of Saudi Arabia, proposed a significant cut in production to
counter the impact of the coronavirus on large consumers such as China and Europe, but
Russia refused, in order to hit US shale producers, the which need high prices to obtain
benefits.
Faced with Russia's refusal, Saudi Arabia started a price war, lowering the price of oil that
it places in Asia, Europe and the United States, at the same time that it announced a
forthcoming increase in production to gain market; operators in the oil business believe
that oversupply of barrels could saturate storage capacity.
Oil exports are vital to the cash flow of the Venezuelan government. On March 16,
President Nicolás Maduro admitted that when taking into account "the cost of production,"
oil exports stopped reporting profits, with the price of Brent at $ 28 a barrel.
"Brent marker oil dropped today from $ 33 a barrel to $ 28 a barrel, which means that the
value of the Venezuelan barrel is below the production price today," said Nicolás Maduro.
The economist Hermes Pérez, who in the past worked as an analyst of the oil market at
the Central Bank of Venezuela, explains that “the latest official information from PDVSA
tells us that in 2016 the average cost of production of all types of crude oil in the country it
was at $ 23 a barrel, and on March 17, when Brent was still trading at $ 30, the
Venezuelan oil basket was priced at $ 21.30 a barrel, that is, there were already losses. "
“The fall in the price today, March 18, aggravated the situation. We are in a scenario
where the government has no oil revenues, "adds Hermes Pérez.
One factor to take into account is that the final price at which the government manages to
sell oil is lower than that of the oil basket, because United States sanctions force it to
depend on intermediaries who demand a significant discount.
The magnitude of the discount is difficult to determine because it depends on the type of
crude oil, the destination, the quantity, but Antero Alvarado, director of Gas Energy,
considers that in large numbers, “it could be said that the discounted price can be $ 15
below the Brent price ”.

The decline in price and the impact of United States sanctions are mixed with the collapse
of PDVSA production, which, according to the OPEC report, produced in January this year
733 thousand barrels per day, the lowest level since 1945.
Ecoanalítica estimates that with an average price of Brent at $ 30 this year, which seems
highly unlikely given the decline in the price of a barrel, public accounts record a deficit of
$ 6 billion when taking food imports into account that the State carries out and the
payment of the debt to Russia and China that the Government tries to keep up to date.
In order to contain the spread of the coronavirus, the government implemented a "social
and collective quarantine" starting Monday, March 17, which implies suspension of classes
and all work activities, except for food chains and health services, security and public
transport.
The paralysis of activities hits hard to the own-account workers who depend on what they
earn every day to cover the basic needs. It also impacts the cash flow of companies and
businesses that stop receiving income while fixed expenses such as salary payments,
rents and loan installments are maintained.
In this environment, Nicolás Maduro announced on Monday of this week that "we are
studying and we must be announcing in the next few hours, a set of social benefits through
the card of the country, on the occasion of the coronavirus crisis for the Venezuelan
family" .
In order to increase public spending, the government will most likely have to create money,
something that will imply greater inflationary pressure and a possible increase in the price
of the dollar: that is, acceleration of inflation in a context where prices accumulate a jump
of 3,276% in the last twelve months, as measured by the National Assembly.
Hermes Pérez affirms that “there is no other possibility than to accept greater inflationary
and exchange pressure; that's preferable to doing nothing. The situation is not sustainable.
I think that apart from transfers to the population, we must think of other measures such as
reducing the reserve requirement so that banks can grant financing to companies and
individuals; exempt the next payment of income tax and reduce VAT. "
 The economist Francisco Rodríguez, who heads a foundation that promotes the
exchange of oil for food for Venezuela, writes in an analysis that “a greater proportion of
the population lives in precarious conditions, with which, in the absence of a universal or
quasi-universal transfer , the incentives to not obey the calls to social quarantine will be
high. Furthermore, only very small sectors have significant savings to enable them to
overcome a prolonged period of reduced economic activities. ”
 He adds that “if we start from the assumption of a transfer of 25 dollars a month per
person, similar to the current opportunity cost for unskilled workers, and given an
economically active population of approximately 15.9 million people, a universal or quasi-
universal subsidy would cost approximately 400 million dollars a month ”.
From his point of view, an agreement between the government and the opposition is
necessary to allow the country to receive financing from multilateral organizations, to be
able to use profits from mixed companies in the Orinoco Belt that have not been delivered
to PDVSA due to US sanctions, and a deal to relax the ban on oil exports to the United
States.
Nicolás Maduro asked the International Monetary Fund for a loan for $ 5 billion in order to
improve the response capacity of the health system and contain the effects of the
coronavirus, but according to reports from news agencies, the agency did not process the
request in given that it has not decided whether to recognize Juan Guaidó as interim
president of Venezuela.
Even without this obstacle, the government had to overcome a series of difficulties in
obtaining the resources: approval of the opposition-dominated National Assembly, having
general economic policies to overcome the balance of payments crisis, commitment not to
introduce or intensify trade and exchange restrictions, undergo a safeguards evaluation,
and deliver an external audit to the balance sheets of the Central Bank.
In the short term, the environment could harden: Goldman Sachs states, in a report sent to
its clients, that in the second quarter of the year, the average price of Brent oil could drop
to $ 20 a barrel, and the Venezuelan private sector faces this situation is very weak, after
six consecutive years of recession.