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U. S. sanctions against PDVSA CITGO affect oil and naphtha in Venezuela



By Argus


Petroleumworld 02 01 2019

The United States has imposed sanctions on Venezuelan state oil company PdV on Monday, halting sales of diluents to the country and buying heavy sulfur heavy oil off the US Gulf Coast.

The sanctions allow Cit go, a US-based Venezuelan refinery, to continue operating until the already completed negotiations on cargos reach their destinations. Any future business approved by the US government should be paid until April 28 to "blocked" accounts. The amount will go to the democratic government recognized by the US, led by the president of the Venezuelan National Assembly, Juan Guaidó, or by the future elected leader.

US officials have downplayed the impact of the decision on the country's refineries that operate with below-normal heavy oil stocks with high sulfur content. However, restricting trade with PdV will reduce sales of US naphtha and will trigger a rearrangement of global reserves of heavy crude oil.

"I am sure many of our friends in the Middle East will be happy to compensate for the supply of the PdV," said US Treasury Secretary Steven Mnuchin.

President Nicolás Maduro said the new sanctions are "illegal, unilateral, immoral and criminal. They are trying to steal Citgo from Venezuela, this is an illegal move," and promised to take legal action to defend the company.

"They want to close the way for a great future for Venezuela," Maduro said.

Citgo may continue to operate but shall not send any payment or distribution that is not intended for the Guaidó government in Venezuela. The 167,000 b / d refinery in Lemont, Illinois, does not rely on imports from Venezuela. Despite this, the country's crude oil supplied 28pc of the 425,000 b / d of Lake Charles, Louisiana refinery's needs. The company did not respond to requests for clarification.

The decision is to immediately suspends the flow of 490,000 b / d of heavy sulfur heavy oil from Venezuela to the Gulf Coast. Refinery access to alternative products has declined sharply in the last two months. Opec and non-OECD member statements have resulted in a reduction in the supply of 1.2 million b / d of medium and heavy oil. The government of the province of Alberta, Canada, has begun production cuts this month to ease plentiful inventories and reduce constraints in pipelines in the region.

Even if Canada decides to stop the cuts, logistical problems will continue to limit supply alternatives from North America to the Gulf Coast. Recurring US delays in TransCanada's 830,000 b / d Trans Keystone pipeline contributed to continued reliance on Venezuelan oil, according to Stephen Brown, executive director of RBJ Strategies consultancy.

"This is a completely remediable problem, and the short-sightedness of US policy basically threw refineries into Maduro's arms," ??Brown said. "It's that simple".

Venezuela also accounted for approximately 10pc of crude oil exports in the last four years, including naphtha. Naphtha can reach about 30pc of diluted crude oil (DCO) exports.

On the Gulf Coast, gasoline inventories hit record highs, reducing domestic demand for naphtha. Sellers will need to find new markets for the unfinished mix.

US refineries that currently do not import from Venezuela have told Argus that the supply disruption is manageable.

"We support the [US Government] administration's goal of bringing about positive change for Venezuela," said American Fuel and Petrochemical Manufacturers and marketing and refining group in a statement. "To this end, we will work with management to minimize any unnecessary disruption or negative impact on the US market and consumers."

Chevron, a regular importer of Venezuelan oil for its 333,000 b / d refinery in Pascagoula, Miss., Said it will continue to "actively manage supply issues" in compliance with US law. The US Treasury Department has set the date July 27 as the deadline for Chevron to reduce business in Venezuela.

Valero and PBF Energy, and independent US refineries regular importers of Venezuelan oil, did not return requests for comment.

Volumes previously destined for the US are likely to be redirected to the Asian market and other locations that can pay directly to PdV. In a recent conversation with Argus, two oil executives in India said the sanctions should increase shipments to India, China and Russia, contributing to Maduro's status quo.

The Treasury Department considered the possibility and instructed US banks to reject transfers between PdVs and counterparties outside the US. The ban will continue until March 29.

The Treasury also ordered the giants Halliburton, Schlumberger, Baker Hughes and Weatherford to cut business in Venezuela by July 27.


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