MOSCOW (MRC) - Venezuela’s revenues from oil sales to the United States have come under severe threat as sweeping sanctions on Venezuelan state-owned oil firm has sent U.S. buyers scrambling for replacements, said Reuters.
The United States on Monday imposed sanctions on Petroleos de Venezuela, S.A., known as PDVSA, to cripple the OPEC member’s oil shipments, which account for nearly all of Venezuela’s exports, in response to the reelection of socialist President Nicolas Maduro, a vote widely viewed as fraudulent.
Washington has recognized opposition leader Juan Guaido as Venezuela’s head of state. U.S. refineries that depend on Venezuela’s heavy crude are turning to domestic sour crude grades to offset the impact, sending prices to the strongest in about five years WTC-MRS, traders said. Other potential alternatives from Canada, Mexico or elsewhere in Latin America are hard to secure amid slowing production, limited spare capacity and transportation bottlenecks, traders said.
Broader oil futures prices found some support on news of sanctions but the market reaction was largely muted as a lack of investment, mismanagement and fleeing workers have already driven the OPEC-member’s oil production to the lowest in almost seven decades.
PDVSA is seeking to sidestep Trump administration sanctions restricting payments for its oil by asking major buyers, including U.S. refiners, to renegotiate contracts, four sources involved in the talks said. The United States is Venezuela’s biggest oil customer, importing, on average, about 500,000 barrels per day (bpd) of crude in 2018, according to Refinitiv Eikon data.
"The region with the biggest shortfall of Venezuelan crudes, either through sanctions or inadvertently through further production declines is the U.S.," said Michael Tran, commodity strategist at RBC Capital Markets, in a note.
The Trump administration sanctions allow U.S. companies to buy Venezuelan oil, but the proceeds of such sales will be put in a “blocked account." Because of this, PDVSA is likely to quickly stop shipping much crude to the United States, its top client. Overnight, Maduro said cargoes loaded for the United States that had not already been paid for could not depart.
"There’s going to be appetite around the world to take Venezuelan oil," Zachary Rogers, an oil markets analyst at consultancy Wood Mackenzie said. Venezuela will likely be forced to offer steep discounts and increase shipments to Russia, China and India to try and make up for lost revenues from its top market, traders and analysts said.
Its output has been cut in half since 2016 to near 70-year lows to less than 1.2 million bpd, according to figures from OPEC secondary sources, due to a major cash crunch. As a result, the U.S. share of its exports has declined in recent years, with more shipments going to Russia and China made largely through oil-for-debt repayment structures.
Venezuela can prioritize exports to Asia, but it is the most competitive battleground on the planet, RBC Capital’s Tran said, adding that while they remain the second largest market for Venezuelan crudes, the Chinese have also tapered its buying from Caracas over the past two years.
MRC