Venezuela Oil and Russia
Mood:  hungry
Venezuela, the world's fifth-largest oil exporter, has struck a bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year. Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with "clients" and "third parties" as it faces a shortfall in production, according to a person familiar with the deal.

Venezuela could incur penalties if it fails to meet its supply
contracts. Documentation obtained by the Financial Times shows that the state-owned Petr?leos de Venezuela (PDVSA) made a financing arrangement this month with investment bank ABN Amro to facilitate the purchases of oil from Russia via Rotterdam. PDVSA is believed to have dropped the Dutch bank after the Russian government agreed to provide Venezuela with an "open account" facility to buy the oil. The Ruhr Oel refinery in Germany, in which PDVSA has a50 per cent stake, may be among the clients
that are being supplied with the Russian oil.

PDVSA would not confirm yesterday that it was buying oil from Russia but said a statement would be issued today. The company said it would be "logical" that the Ruhr refinery was sourcing some of its oil from Russia because it would be cheaper than transporting it from Venezuela. One US trader who deals in Venezuelan oil agreed, saying: "We have been expecting PDVSA to start buying [oil from the] Urals for the Veba system for some time. It is possible that they are trying to buy directly from Russian producers." The move suggests a growing gap between Venezuela's declining domestic output and its expanding contractual obligations to international customers. Luis Pacheco, a former planning director of PDVSA, said: "Why would Venezuela be buying crude oil from Russia? I would imagine it would be to meet obligations for light oil deliveries,
but they are relatively small. Most of PDVSA's obligations are for heavy oil."

Under President Hugo Ch?vez, PDVSA's oil output has declined by about 60 per cent, a trend analysts say has accelerated in the past year because of poor technical management. Mr Ch?vez's push to extend his influence throughout Latin America and the Caribbean with promises of cheap oil for friends and allies may be overstretching PDVSA's finances, however. Venezuela currently supplies about 300,000 barrels per day of oil and products to Cuba, Nicaragua and others under favourable long-term financing arrangements. This week, Venezuela signed a deal to send oil
to town mayors in Nicaragua aligned with the leftwing Sandinista party.