In response to the re-election of President Nicolas Maduro, the Trump administration is considering imposing sanctions against Venezuelan oil exports, however, refiners in the US are concerned it would be even harder to secure heavy crude supplies.
Venezuelan oil exports to US amount to about 500,000 b/d
The Trump administration is considering slapping sanctions on Venezuelan oil exports in response to the re-election of President Nicolas Maduro. The vote is seen by many as a sham election.
Should Washington decide to put sanctions on Venezuelan crude, the South American country would likely be forced to sell its heavy oil to China, India or other Asian countries, according to Reuters.
“It will be costly for Venezuela but eventually they’ll be able to sell that oil to Asia at a discount. There will be a period in the middle in which they have difficulty selling those barrels,” Francisco Monaldi, fellow in Latin American Energy Policy at the Baker Institute for Public Policy at Rice University told Reuters.
The sanctions would have an impact US Gulf Coast refiners, among Venezuela’s biggest customers. Should the sanctions be implemented, US refiners already struggling to secure supplies of heavy crude from Canada and Mexico would face higher prices and even more limited availability.
Prices for heavy crude are already on the rise. Mars Sour traded at a five-year high $6.90 premium to US crude on Wednesday, according to Refinitiv Eikon data.
US sanctions “would make a tight market even tighter. If it happens, it would be an unambiguous headwind for refiners already struggling to find supplies,” Bob McNally, president of Rapidan Energy Group, told Reuters.
In the meantime, traders say the US may need to sell some of its heavy crude from the US Strategic Petroleum Reserve to help cover shortfalls until additional Canadian and Mexican shipments are secured.
While the United States produces nearly 12 million barrels per day (b/d), Gulf Coast refineries require heavier crude grades to produce diesel and other high-margin products. Lighter US crude cannot be substituted for heavy crude in these refineries.
In 2018, Venezuela exported an average of about 500,000 b/d to the United States, according to US Energy Department data. The share of US imports of Venezuelan crude has fallen in recent years. and Venezuela’s state-run oil company, PDVSA, is shipping more oil to Russia and China as part of oil-for-debt repayment structures.
PDVSA output has tumbled to near 70-year lows as Venezuela falls further into economic and social crisis. Since 2016, Venezuela’s crude output has dropped by half to 1.2 million b/d, according to OPEC secondary sources.
Sanctions would further punish Venezuela’s already pummelled economy. Venezuelan oil exports to the United States account for about 75 per cent of the cash the country gets for crude shipments, according to a Barclays research note from last week.
The Trump sanctions on Venezuela could also include US exports of petroleum products to Venezuela which are used for blending heavy crude.