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Venezuela sanctions start to affect European sour crude market



By Gillian Carr / Platts

Petroleumworld 02 07 2019

The effects of ongoing US sanctions against Venezuela are starting to be felt in the sour crude market in Europe, sources said this week, with the possibility of Urals being diverted to the US and increased offers of Venezuelan crude being seen in the Mediterranean.

While the immediate effects of the US sanctions on Venezuelan crude are being most keenly felt by Gulf Coast refineries and nearby Latin American oil exporters, the European market has also been affected, primarily with increasingly cheap offers of Venezuelan crude into the region, sources said.


Spanish refinery Repsol was heard to be offering a prompt-loading cargo of a Venezuelan heavy sour grade but had not yet found a buyer, sources said.

A representative from Repsol could not immediately be reached for comment.

Mediterranean refineries do not frequently buy Venezuelan crude.

"We can see offers but think nobody is bidding due to Trump sanctions on Venezuela payments," a trader of sour crude said. "The financial lines for a large portion of European refiners are held by US banks."

Other sources said that while additional flows of heavy sour crude would likely be welcomed by Mediterranean refineries faced with a tight market -- due to a lack of Iranian crude caused by sanctions and less Middle East crude and Russian Urals crude coming into the region -- but the current restrictions would make it difficult.

Late last week, the US Treasury clarified that non-US entities had three months to wind down transactions with Venezuelan state-owned oil producer PDVSA that involved the US financial system or US commodity brokers. Essentially, purchases of PDVSA crude and products can no longer be made with US dollars after April 28, according to the Treasury.

The rules, while not an explicit ban on crude or product transactions between foreign firms and PDVSA, do increase risk to foreign buyers, who may fear that dealing with PDVSA could leave them cut off from US financial institutions, analysts have said.

"It's not exactly the same as Iran -- in theory you have a waiver but it is the same situation in that you can't buy it," a second crude trader said. "We've checked with banks and at the moment it's a no-go, as all banks in Europe have a US-based affiliate."


A secondary area where the European market has seen an impact is the possibility of sour crude, namely Russia's Urals, loading out of Northwest Europe, heading to the US Gulf Coast instead.

Urals traders have expressed mixed views as to whether this could be a viable arbitrage route for the medium sour crude, with some citing high delivered prices and competitive alternatives from nearby Colombia and Brazil.

"We've been checking and so far a number of majors have said it's miles away from working -- although I had thought it could work, but seems that they'll go with something from Latin America like Vasconia or Castilla," a Urals trader said.

However, other traders were more bullish on the possibility of arbitrage volumes making it across the Atlantic, particularly for the upcoming March loading program of Urals, which is expected to be larger than the past couple of months.

"People are going to realize it's not easy to buy alternatives, so we expect some pull from the US and Urals in Northwest Europe is a good option," a second Urals trader said. "[Domestic crude] Mars is super expensive, plus trans-Atlantic freight is weakening at the moment."

Only a small portion of the overall Urals program makes its way across the Atlantic, with between two and four cargoes per month landing, mainly on the US Atlantic Coast and Canadian East Coast refineries.

--, gillian.carr@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com


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Story by Gillian Carr; Edited by Edited by Jonathan Fox from Platts / SPGlobal.

02 07

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