Falling oil production has pushed hard-pressed Venezuela into “a deeper phase of economic stress,” warns Moody’s Investors Service.
Because of mismanagement and underinvestment, Venezuelan production is falling faster than crude-price stabilization can offset financially, Moody’s says in a research note.
After falling to nearly a 3-decade low in October 2017, Venezuelan crude output dropped further to 1.837 million b/d in November.
Contrary to predictions of a rebound by new Oil Minister Manuel Quevedo, new data from the government indicate another decline in December.
Production now is about 1.621 million b/d, and Moody’s expects production to fall below 1.5 million b/d later this year.
“The fall in production will only exacerbate cash-flow stress,” Moody’s writes in a research note. “While oil prices have rallied in recent months, the decline in oil production will more than offset the would-be increase in dollar inflows from oil exports.
“This has negative implications for both debt repayment capacity and Venezuela’s already grim economic outlook.”
Moody’s sees “a negative feedback loop between declining production across all economic sectors, accelerating scarcity of hard currency, and an economic policy mix defined by price controls and forced discounting that exacerbate supply shortages and hyperinflation.”
The credit-monitoring firm earlier expected inflation to moderate this year after exceeding 1,800% in 2017.
“However, the latest production news suggests that hyperinflation will persist,” the firm says. “We now expect it to accelerate to well over 4,000% this year due to falling production capacity and the current policy mix.”
