As OPEC Tries to Squeeze Rivals, One of Its Own Feels the Pinch

(Bloomberg) -- Forget the opposition. OPEC is doing more to ruin the holiday season for Venezuela President Nicolas Maduro than any of his rival lawmakers.

Maduro stepped up attacks on his opponents this month after they won enough seats in congressional elections to challenge his government. While bonds initially rallied on optimism the opposition victory could lead to more market-friendly policies, Maduro’s comments quickly killed that euphoria. Now, it’s the rout in oil that’s doing the most damage to the prices of the securities.

Oil, by far Venezuela’s biggest export, has plunged 17 percent to an 11-year low since the Organization of Petroleum Exporting Countries abandoned production limits at its Dec. 4 meeting. Venezuela’s benchmark bonds due in 2027 are at the cheapest since August, and traders see a 71 percent probability that the country will default in the next 12 months, credit- default swaps show. That’s up from 61 percent the day before the OPEC decision.

“The initial reaction to the election results was positive, but then oil just collapsed,” said Phillip Blackwood, a managing director at EM Quest, which advises Sydbank A/S on its debt holdings. “The bills still need to be paid and that comes from oil.”

Oil at these levels could prevent Venezuela from meeting its debt obligations as soon as February, Barclays Plc said Friday. The OPEC member relies on income from oil sales for almost all of its hard currency. It may need to sell $20 billion of gold or other assets to meet next year’s commitments, Alejandro Arreaza, Alejandro Grisanti and Sebastian Vargas, analysts at Barclays, said in a report to clients. Venezuela’s crude basket fell to an 11-year low $29.17 last week.

“The latest decline in oil may have undermined government confidence, putting even this payment at risk,” they wrote.

The yield on Venezuela’s bonds due in 2027 rose 4.56 percentage points from Dec. 9 to 26.16 percent as of 11:05 a.m. in New York on Tuesday, handing investors a loss of 17.5 percent in less than two weeks, the steepest in emerging markets.


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