SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 8 August 2016ContactsIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li 212-553-1404Senior Research Analyst xian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Sovereign Risk ReportVenezuela's Sovereign Credit Risk Fails to Improve on Recent Oil Price Gains The price of crude oil bounced from $39.72 to $42.58 in the week ended August 5, as the US Energy Information Administration reported that total gasoline inventories fell by a larger-than-expected 3.3 million barrels. Some of the major oil exporters Saudi Arabia, Qatar, Russia, Colombia and Mexico have either shown a small decline or no change in their five-year Sovereign EDFTM (Expected Default Frequency)1 metrics. The limited improvement in the credit profiles of these countries can be explained by lingering concerns about the slowing Asian economy, post-Brexit uncertainties in Europe, and sluggish growth in the US. All of these factors put additional pressure on already weak demand. This is particularly troublesome as the Organization of the Petroleum Exporting Countries (OPEC) oil production rose by 100,000 barrels per day to 33.41 million barrels per day in July 2016, the highest level since 1997.The declines in the five-year Sovereign EDF measures for Colombia and Russia have exceeded 30% since January 21, 2016 (Exhibit 1), when oil prices plunged below $30 per barrel. This means, for example, the probability of default for Russia over a five-year horizon has dropped from 0.73% on January 21to 0.44% on August 5, indicating improvement in its credit profile.MOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 8 August 2016 Sovereign Risk Report: Venezuela's Sovereign Credit Risk Fails to Improve on Recent Oil Price GainsExhibit 1Five-year sovereign EDF measures for seven major oil exporters (%)Sourc...
