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Venezuela Quick Take Q&A: Who'd lose most from U.S. ban on Venezuela crude?

"The move will likely cripple PDVSA-owned Citgo, which would be forced to buy higher-priced crude on the spot market for its refineries," McMonigle said in a note Tuesday. "But US refiners, who oppose the sanctions, would also be impacted as it would force Gulf refiners to find replacements for heavier grades of Venezuelan crude." -Platts

Petroleumworld 07 20 2017

U.S. President Donald Trump may turn up the pressure on Venezuela's crippled regime by going after the most vital link between the two countries: crude oil. The Trump administration is considering a ban on oil imports from Venezuela as part of a spate of sanctions to punish President Nicolas Maduro, people familiar with the matter told Bloomberg News. Maduro's government has been accused of corruption and attempts to quash political opposition . Targeting crude oil is controversial even within the White House, where some officials say it would impose too much pain -- on both countries

Why Venezuela's many crises keep getting worse - En large video

1. How important is Venezuelan crude to the U.S.?

Venezuela is the third-biggest supplier of oil imports to the U.S., behind Canada and Saudi Arabia. Gulf Coast refiners including Valero Energy , Chevron Corp. and Phillips 66 have spent millions tailoring their plants to use Venezuela's unique brand of heavy, tar-like crude. Venezuelan shipments accounted for about 10 percent of American oil imports last year. Nonetheless, those shipments have been waning in importance as Venezuela's economic woes have crimped production. Imports from Venezuela to the U.S. hit a 24-year low in the first quarter of this year.

2. What would U.S. refiners do without Venezuela crude?

Disruptions are part of the game in the oil market, and refiners no doubt have backup plans. But the companies may see profit decline if they're forced to reduce gasoline and diesel output or to find replacement supplies from the Middle East or other regions. Spokespeople for Valero, Chevron and PBF Energy Inc. , among the biggest buyers of Venezuelan crude, either declined to comment or didn't respond to messages on Tuesday. Phillips 66, in a statement, said a U.S. ban wouldn't prevent Venezuela from selling its crude elsewhere on the global market.

3. How would consumers be affected?

Gasoline and diesel prices would rise, but the impact would likely be temporary, said Andy Lipow of Lipow Oil Associates LLC, an industry consultant in Houston. Until an alternate supply is on line, a ban on Venezuela "might increase costs for some refineries, and they may or may not be able to pass that on to gasoline prices," Lipow said in a telephone interview. The American Fuel & Petrochemical Manufacturers, an industry trade group, argued in a July 6 letter that sanctions could have “a significant negative effect on U.S. refiners, consumers and our nation's economy." 

4. Who might benefit?

Canada's tar-sands are among the closest analogues to Venezuela's heavy crude and would be among the first options for U.S. importers, analysts said. Mexico, Colombia and the Gulf of Mexico are also probable sources of replacement crude. Over time, refineries could also turn to Saudi Arabia, Iraq and Kuwait for supplies, Lipow said, although they'd come with higher costs.

5. Who might be hurt?

A U.S. ban would be a double hit on Venezuela's state-owned oil company, Petroleos de Venezuela SA (PDVSA), since the biggest U.S.-based consumer of its oil is its own subsidiary, Citgo Petroleum Corp., the refiner and gas-station chain. A U.S. ban would force Citgo to pay more for oil on the spot market while reducing income back to the mother country, according to Mara Roberts, a New York-based analyst for BMI Research. “PDVSA's reliance on the U.S. market has put it in an extraordinarily difficult position,” Roberts said. “An embargo would cripple its revenues to an even greater extent, which would be terrible news in the run-up to another large debt payment in the fourth quarter.”

6. How much does PDVSA supply to the U.S.?

It sent an average of 741,000 barrels a day of crude to the U.S. in 2016, about a third of its total production. Citgo has already reduced its take this year, as its struggling parent company looks to maximize sales to other customers.

7. What would sanctions accomplish?

Oil exports are crucial to keeping Venezuela even marginally afloat, as they account for a majority of the government's revenues. Members of the U.S. National Security Council therefore view limits on Venezuelan crude imports as a potent weapon, said Joe McMonigle, a senior energy policy analyst at HedgeEye Research and former chief of staff at the Energy Department. A person familiar with the Trump administration confirmed that assessment to Bloomberg, but said some in the administration are wary of cutting off a major source of foreign trade and doing more harm to already suffering Venezuelans . Still, the industry could eventually become a target, said Lisa Viscidi, director of the Energy, Climate Change & Extractive Industries program at Inter-American Dialogue, a think tank in Washington. “As the opposition runs out of tools to fight the government, I think they eventually could turn against the oil companies,” she said. “That would be a weapon of last resort, in a bid to bring the government down.”

The Reference Shelf

  • While Maduro's critics railed against Goldman Sachs for buying bonds from PDVSA, they haven't protested its crude sales to U.S. companies. 
  • A QuickTake Q&A on the uproar over Venezuela's constitution.
  • The debate over Venezuelan “ hunger bonds ."
  • Bloomberg View columnist Mac Margolis thinks time is running out on Venezuela's ability to buy the silence of its neighbors with cheap oil. 
  • Bloomberg reporter Fabiola Zerpa described her desperate hunt for food in Caracas.

Story by Alex Nussbaum, Lucia Kassai, and Meenal Vamburkar from Bloomberg.

07 18 2017

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