Page 74 - The Economist

74 Finance and economics The Economist December 9th 2017
Venezuela and oil prices ing agencies. Lee Buchheit, a debt-restruc-
Christmas Caracas turingexpert at Cleary Gottlieb, a law firm,
says that so longas some cash continues to
flow to bondholders, they are reluctant to
use legal means to seize Venezuelan assets,
as they did in Argentina. Ifthat calculation
changes, oil firmscould be loth to buy Ven-
ezuelan oil.
Afull-scale defaultcould manage what American sanctions make things hard-
OPEC struggles to do
er.FranciscoMonaldi,aneconomistatRice
N NOVEMBER 30th, as oil tsars from UniversityinTexas,saysVenezuela’sexclu-
Othe Organisation ofthe Petroleum Ex- sion from American credit markets has
porting Countries (OPEC) and Russia met worsened PDVSA’s difficulty in paying
in Vienna, Venezuela’s former oil minister, partners and suppliers. As a result, produc-
EulogiodelPino,onceoneoftheirnumber, tion from fields it operates directly has fall-
wasseizedbyarmedguardsatdawninCa- ensharply.Hesaysfieldswhereitisinpart-
racas, and taken to jail. His arrest was not nership with international oil companies
publicly acknowledged in Vienna. His re- Who believes in Nicolás? have provided almost two-thirds of recent
placement, Manuel Quevedo, a general in production, but are also startingto suffer.
the national guard, attended OPEC and data, China has replaced America as Vene- Mr Quevedo blames PDVSA’s falling
was received with the usual deference. zuela’s biggest export market. But it is los- output on American “sabotage”, as a pre-
Also unmentioned was how Venezue- ing patience. This week Sinopec, a state oil lude to a coup. Adding to the ferment, Rus-
la, embroiled in a massive, messy debt de- company, sued PDVSA overunpaid debts. sia has backed Venezuela by refinancing
fault, is doing plenty of OPEC’s dirty work. Output could plummet if the country some of its debts, thanks largely to Igor Se-
Since November 2016, when OPEC first or PDVSA fall into full-scale default. So far, chin, boss of Rosneft, an oil giant, which
agreedwithRussiatocutoutputtopushup the company is considered to be in default haslent$5bn to PDVSA. The upside forhim
oil prices, Venezuela’s has fallen by on some interest payments, though it con- is that even if Venezuela’s plight worsens,
203,000 barrels a day (b/d), to1.86m b/d in tinues to repay principal, according to rat- its oil assets will become cheaper. 7
October. That is more than twice the cut it
agreed with OPEC of95,000 b/d.
Ifitsproduction continuesto fall—some Hedge funds and artificial intelligence
analystssayitcouldbedownto1.6mb/din
2018—it could either drive up oil prices fur- Return on AI
ther or absolve some countries from the
cuts they agreed to last month. “Venezuela
gives OPEC and Russia wiggle room,” says
Helima Croft ofRBC Capital Markets.
Venezuela’s output has lurched lower
since 2016 amid economic mismanage- SAN FRANCISCO
AI-driven hedge funds need human brains, too
mentbythegovernmentofPresidentNico-
lás Maduro. A cash crunch hit payments to RTIFICIAL intelligence (AI) has already however, where machine learning is so
the oil-service companies that workon the Achanged some activities, including much part of the furniture the term fea-
world’s most abundant oil reserves. Mak- parts of finance like fraud prevention, but tures unexplained on roadside billboards,
ing matters worse has been the partial de- not yet fund management and stock-pick- a clusterofupstart hedge funds has sprung
fault on debts of the government and ing. That seems odd: machine learning, a up in orderto exploit these techniques.
PDVSA,thestateoilcompanythatprovides subset of AI that excels at finding patterns These new hedgies are modest enough
95% of the country’s exports. PDVSA has and making predictions using reams of to concede some of their competitors’
made $9bn of payments this year, and data, looks like an ideal tool for the busi- points. Babak Hojdat, co-founder of Sen-
owes $5bn in 2018. ness. Yet well-established “quant” hedge tient Technologies, an AI startup with a
In recent weeks the disarray has be- funds in London or New York are often hedge-fund arm, saysthat, leftto their own
come farcical. The Maduro administration sniffy about its potential. In San Francisco, devices, machine-learning techniques are 1
arrested more than 60 oil executives, ac-
cusing them of corruption, and replacing
them with soldiers such as Mr Quevedo,
who have no clue how to produce oil. In a
Christmas message on December 3rd, Mr
Maduro compounded the absurditybyan-
nouncinga planned cryptocurrencycalled
the “petro”, backed by Venezuela’s oil re-
serves, to evade American financial sanc-
tions. He might as well have asked people
to believe in Santa Claus.
The threatto Venezuelan oil production
is real enough, though. Vortexa, a firm that
tracksflowsofcrude in real time, says ship-
ments to America, where Venezuela pro-
vides heavy crude feedstock for its own
and other refineries, plunged in the three
months to November 30th. On Vortexa’s