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EIA sees modest price effects of US sanctions on Iran and Venezuela



By Argus


Petroleumworld 02 06 2019

The US Energy Information Administration (EIA) says global oil markets for now are adjusting to the effect of US sanctions on Iran and Venezuela, with modest effect on prices.

"We are finding that while it is disruptive, there are adjustments that get made, and so the oil and gas is flowing," EIA administrator Linda Capuano told the Senate Energy and Natural Resources Committee today. "Prices are changing modestly."

The US administration imposed sanctions late last month that require US refiners to wind down purchases of Venezuelan crude by 28 April and ban exports of diluents to Venezuela. Venezuela's state-owned PdV could in principle redirect the roughly 500,000 b/d in crude and products away from US markets, but indirect effects of US financial sanctions make finding new markets difficult.

Washington at the same time is enforcing restrictions against Iranian crude exports, threatening to impose a total ban after 4 May. Iranian liquids exports were at about 1.3mn b/d last month, down by half from pre-sanction levels.

The EIA assessment of oil market balance plays a role in determining how vigorous the US policy of sanctions against Iran can be, as having sufficient, adequately priced supply is a prerequisite. The EIA plans to release its next bimonthly assessment of Iran sanctions effects together with its Short-Term Energy Outlook on 12 February.

Last month's outlook projected that global supply of crude and oil products would exceed demand this year, even with a total cutoff in Iranian exports. US administration officials point to that conclusion in previewing a more stringent sanctions regime against Tehran in three months.

Sanctions on PdV have more direct relevance for US markets. "Venezuela has heavy crude. Our refiners use heavy crude in order to produce product, but there are other sources of heavy crude, for example from Canada and others," Capuano said. The EIA is monitoring both developments as "things are happening," she said.

Prices for benchmark US Gulf coast sour crude tumbled to its narrowest discount to waterborne light, sweet crude since August 2011 after Venezuela sanctions took effect. The heavy sour crude benchmark Western Canadian Select (WCS) an alternative to Venezuelan supply from the single largest exporter to the US rose to a $2/bl premium to US benchmark crudes following the sanctions, the third-largest increase since assessments began in 2016.

Logistical constraints and government curtailments have limited refiner access to WCS to replace Venezuelan barrels on the US Gulf coast, where the largest volumes of Venezuelan crude to the US land.

The US prohibition on exports of diluents to Venezuela could also cut exports from that country by one-third. In such a scenario "it is not just a question of Venezuelan barrels not coming to the US, but it actually becomes a question of Venezuelan barrels not going into the world," ClearView Energy Partners managing director Kevin Book told the Senate panel.


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