Venezuelan sanctions and the tanker market

Aug 11 2017


Recent events in Venezuela are a good example of the world’s political arena having important repercussions for the tanker market, said Gibson Shipbrokers in a report.

In late July, the US Treasury imposed sanctions on a number of Venezuelan politicians in an unsuccessful bid to deter the controversial vote for a new constituent assembly. After the elections took place, the US authorities also swiftly sanctioned President Maduro by freezing his assets in the US and preventing US firms and individuals from doing business with him.

 

Much publicity has also been generated about possible further sanctions on the Venezuelan oil industry in case the US government decides to act upon its threat to take ‘strong and swift’ economic action against the country.

 

As Venezuela is one of the world’s largest crude producers, it is an important market for tankers. Venezuelan oil output has been in decline since 2015, embattled by low oil prices and economic/political challenges faced by the country. This year, a further decline in production was seen, following the implementation of OPEC led output cuts.

 

During the first half of this year, Venezuelan crude output averaged just over 2 mill barrels per day, down almost 450,000 barrels per day from 2015 levels. Despite the decline in absolute volumes, the country continues to export significant amounts of crude. For example, the long haul trade to Asia/Pacific has increased relative to 2015 levels, due to the decline in shipments to the US and also following a notable drop in crude throughput at domestic refineries.

 

Crude shipments to China averaged around 450,000 barrels per day between January and June, 2017, up by around 150,000 barrels per day versus the same period in 2015.

 

If US implements sanctions affecting Venezuela’s oil industry, these could impact the long-haul trade to the East. One of the most aggressive sanctions being discussed is to ban imports of Venezuelan crude into the US. Although this trade has declined dramatically since 2004, from 1.74 mill barrels per day to 730,000 barrels per day during the first four months of this year; nonetheless the volume shipped remains substantial.

 

If it is blocked, the vast majority of these barrels are likely to be shipped further afield, mostly to Asia/Pacific, offering a major boost to long haul VLCC trade at expense of short haul Aframax business to the US. US refiners will also find themselves in need to replace Venezuelan barrels with similar quality crude, which again will be sourced from elsewhere.

 

Other possible sanctions include the blocking of oil exports to Venezuela. The country is a regular buyer of US light crude and naphtha for blending with its own heavy grades. Due to problems faced by the domestic refineries, Venezuela also imports gasoline and distillates from the US. If the US authorities decide to inflict sanctions, Venezuela will be forced to source both light crude and products from further afield.

 

Finally, media reports suggest that the US authorities are considering banning the use of US dollars in PDVSA oil transactions. This scenario is also likely to support long haul trade to Asia, in particular China and India, as was the case when Iranian nuclear sanctions were in place.

 

At this stage, there is a lot of uncertainty and speculation on what shape future US sanctions against Venezuela will take, if any. However, undoubtedly, any of the above will have consequences for the tanker market. Even a threat of further US actions against Venezuela’s oil sector could see the country putting extra effort into expanding crude trade to Asia at expense of shipments to the US, Gibson concluded. 

 



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