More on Venezuela

Feb 15 2019

On 26th January, Washington imposed tough sanctions against Venezuela’s state-owned oil company PDVSA.

This move was designed to halt US imports of Venezuelan crude in an attempt to oust President Maduro. 


The Trump administration stopped short of placing an outright ban; instead, refiners will be able to continue to receive Venezuela’s crude until the 28th April, as long as payments are placed into a blocked account, Poten & Partners explained in an industry note.


Sanctions have already caused chaos and confusion. Reuters reported last week that over a dozen tankers involved in oil trade with Venezuela were anchored in the US Gulf, as shippers sought clarity and payment instructions.


According to AIS data, US imports of Venezuelan crude averaged under 0.5 mill barrels per day last year. The biggest buyer was PDV’s subsidiary Citgo, followed by Valero, Chevron and PBF.


The sanctions come at a time of restricted supply of heavy sour crude and so it may be challenging to replace Venezuela’s barrels but not impossible. Similar quality crudes could be sourced from different areas, most likely from Latin America and Canada. There is also a possibility of higher shipments from the Middle East, but that will be subject to OPEC’s willingness to increase production.


The loss of Venezuela/US crude trade is negative for regional Aframax and Suezmax demand, although this in part will be mitigated if trade from other Latin American countries rises as a result.


Venezuela’s long haul crude exports to the East are expected to continue, as most of this trade is backed by ‘oil for loans’ deals with China and Russia. Furthermore, PDVSA plans to divert the volumes effected by the sanctions to China, Russia and India, where Rosneft has an equity stake in refining assets.


Although this suggests an increase in long haul volumes, there are many uncertainties. For example, importing countries will need to find a way to bypass the US financial system. More importantly, it is unclear whether Venezuela will be able to maintain production at current levels, if government access to revenues from US sales is curtailed.


Venezuela will also need to source naphtha, which is used to dilute extra heavy grades to make synthetic crude for exports. According to ClipperData, Venezuela imported about 80,000 barrels per day of naphtha from the US last year but these shipments are now also prohibited.


Several cargoes which were en route from the US to Venezuela when sanctions were announced have been rerouted elsewhere. If Venezuela is unable to find alternative suppliers of diluent, about 250,000–300,000 barrels per day of the country’s output could be at risk.


The latest sanctions are also expected to halt Venezuela’s imports of clean US products, of which shipments averaged around 80,000 barrels per day in 2018. Here also, much depends on whether Venezuela will be able to source barrels from elsewhere. Europe is a good alternative, but most of European countries have voiced their support for Juan Guaido. As a result, products are likely to be imported from further afield.


Regional/local politics developments over the past few weeks suggest that Maduro’s government is in an increasingly challenging position. Venezuela will also find it difficult to secure tanker tonnage for crude and product shipments.


Guidance provided by the US Treasury with the regards to the latest round of sanctions lacks clarity. Shipping is not mentioned; however, owners were considering whether it is worth continuing to trade with Venezuela. The risks are evident and those willing to trade are likely to demand a significant premium, Poten concluded. 


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