Asian oil refiners face difficulties in ramping up Venezuelan crude oil imports
By E. Muneeb, A. Toh, O. Zhou and E. Yep / Platts
Petroleumworld 02 27 2019
Indian and Chinese refiners, the main customers of Venezuela's state-run PDVSA in Asia, are facing difficulties in ramping up imports of Venezuelan crude from current levels amid US sanctions as oil traders are backing down, payment restrictions pile up and shipping remains uncertain.
Asian refiners accounted for around 40% of Venezuelan crude purchases before the US Department of the Treasury imposed sanctions on PDVSA on January 28. After being shut out of the US market, PDVSA was expected to divert more volumes to its Asia customers.
So far, there hasn't been a significant change in the volume of Venezuelan barrels heading east, according to vessel tracking data and shipping fixtures, partly because non-US entities still have until April 28 to wind down their petroleum transactions with Venezuela under the scope of the sanctions.
There were eight VLCCs with February-loading cargoes headed east from Venezuela, of which six VLCCs showed the west coast of India as their final destination. This is slightly more than usual but doesn't indicate a big surge in trade flows.
Oil majors, trading houses and refiners based in Asia have so far refrained from picking up Venezuelan barrels, despite strong market fundamentals, traders said. Ongoing tightness of supply for medium and heavy sour crude grades in Asian markets has been supporting quality and arbitrage opportunities for equivalent grades, such as Venezuelan barrels, sources said.
On paper, arbitrage economics currently point to the potential inflow of competitive crude grades toward the east, with the Brent/Dubai EFS narrowing to sub-$1/b levels since end-January. A narrower Brent/Dubai spread indicates that Brent-linked crude prices -- such as those for Venezuelan crude grades -- look relatively more attractive to buyers compared with Dubai-linked ones.
But given the uncertainties in Venezuela, buyers considering Venezuelan barrels are asking if the value of the crude is worth the risk, according to a trader with one Chinese oil firm.
This could mean that Venezuela's latest tender has few takers in Asia.
PDVSA has offered 5.8 million barrels of Venezuelan grades, such as Merey 16, Boscan, Bachaquero and diluted crude oil, but its usual customers haven't submitted bids for nine shipments scheduled for between March and June, S&P Global Platts reported Monday. These can now be offered to other buyers, a person close to the transaction said.
The US Office of Foreign Assets Control bars non-US entities from purchasing petroleum and petroleum products from PDVSA if it involves US citizens, the US financial system or US commodity brokers.
The trade finance arms of most financial institutions are hesitant to provide letters of credit or other forms of credit lines to those purchasing Venezuelan crude outside of the US, because of uncertainty surrounding payment clearance, traders said.
In February, an executive at a private Indian refiner said payments were being made in euros for Venezuelan crude and it was hoping to buy more barrels as the refiners had already cut procurement from Iran. It is unclear what payment mechanisms are now being used by Indian refiners.
Traders said barter deals proposed by Indian refiners and China's oil-for-loan agreements would continue to support trade flows.
PetroChina, the state-owned company that executed the loan-for-oil deal for China, took around 15 million mt of Venezuelan crude in 2018, according to a company executive. The volume accounted for 90% of China's total crude imports of 16.63 million mt from the South American producer.
"Most of the volume we take are under the loan-to-oil deal," a second executive with PetroChina said.
In 2017, China imported around 21.77 million mt of crude from Venezuela, around 70% of which was imported by PetroChina in return for loans.
Protection and Indemnity Clubs, which provide marine insurance to members, said Executive Order 13850, which blacklists PDVSA, was not drafted with the specific intent of blocking PDVSA's shipments to countries other than the US.
Non-US persons can continue to purchase PDVSA's oil, which should mean that non-US ship owners can continue to transport that oil, until the April 28 deadline if they avoid using the dollar as a currency, the Venezuelan crypto currency and don't involve any US employees.
But insurers also warned that PDVSA's designation under the sanctions list may allow the US authorities to interpret the supply of ocean transportation to the Venezuelan oil company as material assistance and subject the ship owner's US assets to legal action.
In an advisory dated February 16, London P&I Club told its members: "Given the developing situation in Venezuela and with it the developing attitudes of countries and banks, the Club recommends that Members and Assureds exercise careful consideration of the latest developments when entering into contracts."
"This includes carrying out due diligence on the latest sanctions and banking situation, as well as having appropriate sanctions clauses in such contracts," it said.
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Story by Eesha Muneeb, Andrew Toh, Oceana Zhou and Eric Yep from Platts / SPGlobal.
spglobal.com 02 26 2019
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