Oil-producing nations and their state oil companies in Latin America are poorly positioned to confront sustained lower oil prices, especially in light of the detrimental economic effects of the coronavirus, according to Mauricio Cardenas, an economist who served previously as Colombia’s finance and energy minister.

He argued in a commentary for Columbia University’s Center on Global Energy Policy that with an oil price below $30/bbl, all the major deposits in the region, including the Vaca Muerta shale play in Argentina and Brazil’s vast pre-salt offshore field, are economically unviable.

On Thursday, the April West Texas Intermediate contract rallied $4.85 to settle at $25.22.

In Mexico, “even if the federal government protects its revenues with a hedging strategy that has been a model for other countries,” state oil company Petroleos Mexicanos (Pemex) “is highly exposed and vulnerable,” Cardenas said.

The economist argued that developments in Argentina’s Vaca Muerta “will be slowed and an increase in production delayed. This means lower growth prospects for the country, which was counting on oil to jump-start the economy.”

So far, only Colombia’s 88.5% state-owned oil company Ecopetrol SA has said it will spend less as it faces the twin blows of low oil prices and the coronavirus. On Tuesday, Ecopetrol announced a $1.2 billion reduction in 2020 capital spend in response to the dismal market conditions, saying it plans to prioritize production and cash flow.

Energy companies in Latin America, however, have announced contingency plans that could eventually have an impact on spending, production and other operations.

In Brazil, state energy giant Petroleo Brasileiro SA (Petrobras) issued a statement in which it said it “has been taking all preventive measures to contribute to the fight against the novel coronavirus in our country,” which includes mandatory teleworking for all people in “the risk group” and taking temperatures at all offshore boarding units. All workers returning from abroad need to work from home, and all face-to-face meetings of 20 or more have been suspended.

On Thursday, Argentine state oil and gas company Yacimientos Petroliferos Fiscales (YPF) SA issued a similar statement promoting work-at-home measures. YPF said it guaranteed the delivery of energy to the residents of Argentina, “maintaining in operation all of the energy chain with the least amount of workers needed, while ensuring these workers have the maximum amount of security and aren’t at risk of possible contagion.”

In Chile, energy trade group Empresas Electricas A.G., on behalf of its members, announced the cancellation of all meetings, training, foreign travel and the implementation of telework where possible.

Many countries in Latin America -- with the important exception of Mexico -- have announced the closing of their borders in the fight against the virus. Huge spending programs are also expected to protect workers. Chile on Thursday was the first to announce it would spend $11.75 billion, or 4.7% of GDP, as a fiscal stimulus to confront the economic impact of the novel virus.

Global oil demand, meanwhile, is being hammered. Fitch Solutions Inc. is forecasting a year/year (y/y) decline of 7-10 million b/d in global oil demand for the second quarter of 2020 and sees a y/y decline in 2020 total oil production of 300 million bbl, meaning about 3% of global demand would evaporate.

All of this adds up to a terrible economic outlook for a region that relies heavily on the export of natural resources like oil and gas for its income. Bank of America economists forecast that the region will go into recession this year, and contract by 1.6%.

The International Energy Agency released a statement that said that the current shock could be worse for producing countries than the one in 2014-2015.

“Today, we are witnessing another shock, this time from both the demand side (the coronavirus impact) and a surge in supply. In many producer economies, public finances are in worse shape today than they were five years ago, leaving them even less able to absorb the shock. And the coronavirus is set to provide a huge test for the countries’ social and health infrastructure,” analysts said.

They argued that a country like Ecuador could see its oil and gas revenue fall by 85% compared to last year.

According to Cardenas, the worst hit country most likely will be Venezuela, a nation already reeling from years of economic hardship. Lower oil prices “will further deepen the humanitarian and economic crisis in Venezuela,” he said. “With the economic sanctions imposed by the U.S. and other countries, Venezuela is selling oil at very high discounts to buyers that are willing to circumvent the measures. With current world prices, effective prices for Venezuela’s crude could fall below their break-even, reducing oil production and revenues for the government.”

This week, Venezuelan state oil company Petroleos de Venezuela SA (PDVSA) workers were given a directive to “attend their respective workspaces, with the same spirit of struggle and revolutionary commitment, to guarantee the production and distribution of oil, gas, fuel, lubricants and raw materials resulting from the petrochemical process, for the industrial development of the country, on which the Homeland depends, and our families to overcome the adversity and contingency caused by the coronavirus pandemic.”