OPEC POWERFUL INFLUENCE OVER WORLD ECONOMY

As prices continue to hover around $50 barrel and trying to gain support OPEC continues to influence the world. Venezuelan President Nicolas Maduro was in Saudi Arabia earlier this week to discuss oil market stability, while scrutiny of his country's economic situation increases, bankruptcy fears rise and Venezuelan Congress was trying to impeach him.

60 percent of Venezuela's oil exports go to three countries: the U.S., China and India. While flows to the U.S. make sense, not only given its proximity, but given how the sophisticated refineries on the U.S. Gulf coast can refine Venezuela's heavy crude. But the U.S. has been the destination for just under a third of Venezuela's crude exports this year, ticking slightly higher from last year.

India continues to play an important role at 19 percent through September. And Russia continues to play the game of strategic alliances amid acquisitions and joint ventures, with India. China is also playing an aggressive role in Venezuelan crude up-ticking its import from Venezuela in 2016 versus last year.

The relations between China and Venezuela are deeply entrenched into the economic structure as China loaned Venezuela $45 billion over the last decade, with the debt to be repaid in oil.

So, price of Oil is critical to Mr. Maduro’s political future as well as for Venezuela. Borrowing at $100 a barrel but repaying at $50 is doubling the costs and the Venezuelans are far from being enthusiastic with Mr. Maduro economic policy…and it is an understatement.

We all understand why Mr. Maduro is making a lot of efforts to convince OPEC most prominent member to increase the price in restraining production but OPEC rumblings continue, with Iraq again reaffirming its production is at 4.7mn barrels per day.

In the USA, the market seems impervious to the financials situation of companies. It turns out that while bankruptcy filings are up, they have barely impacted fossil-fuel markets and production level.

About 100 U.S. oil and gas companies filed for bankruptcy in 2015 and 2016. They now produce the equivalent of about 1 million barrels a day, about the same as before they declared bankruptcy, per Wood Mackenzie. That represents about 5% of U.S. oil-and-gas output.

That resilience has kept energy inventories flush and prices capped. Oil shot to $50 a barrel this summer, but has had trouble making much progress beyond that mark.

If some were hoping that bankruptcies would help balance the market they were wrong. In fact, these companies obtained protection under chapter 11 during the storm of low pricing and with OPEC considering a new direction some are hoping for an exit of Chapter 11 in the coming months.

Oil hit historic lows this year and, while it has found a balance somewhere between $45 and $50 per barrel it is just half of what it was three years ago. Oversupply continues to hamper the market and is not high enough to allow the flourishing of the US production especially with a harsh energetic policy by the Obama administration, which is clearly not friendly to the energy sector.

Even accounting for recent draw-downs, oil producers and importers have added 18 million barrels to U.S. stockpiles this year, bringing the total to a near-record 469 million according to the most recent data from the U.S. Energy Information Administration.

There is about $100 Billion of debt at risk with these bankruptcies and the Bank sectors is very cold toward energy and not willing to extend new lending facility even to well managed energy companies.

Bank lenders are reluctant to take ownership of assets that have been used as collateral by borrowers and so far, banks have been friendly to troubled companies.

During bankruptcy, a majority largely reaffirmed credit lines from their banks as the banks do not know what to do with such assets. Everyone is hoping for a “miracle” from OPEC with a reduction from overseas output to allow the price to go back up and stabilize the market.

From President Maduro internal problems to Exxon and all US energy companies it seems that OPEC continues to expand its power over international economy.