New US sanctions against Venezuela’s national oil company Petroleos de Venezuela SA (PDVSA) could push the South American country’s crude oil production to a 700,000-900,000 b/d range for 2019, IHS Markit said in a Jan. 30 report.
“It is uncertain how much of the 500,000–600,000 b/d of US imports will be absorbed by other buyers and at what price,” said Jim Burkhard, a vice-president in IHS Markit’s Washington office. The 5 million bbl of Venezuelan crude now en route to the US likely will be the last barrels delivered until the Jan. 28 sanctions are lifted, he added.
The Trump administration imposed the sanctions after a determination by US Treasury Sec. Steven Mnuchin, in consultation with US Sec. of State Mike Pompeo, that persons in PDVSA are plundering operations to smuggle drugs and otherwise increase their personal gain (OGJ Online, Jan. 29, 2019).
It moved days after the US and several other countries dismissed the reelection of Venezuelan President Nicolas Maduro as illegitimate and instead recognized National Assembly Leader Juan Guaido, who declared himself interim president.
“Sanctions combined with limited fungibility of Venezuela’s extra-heavy crude oil and the burden of paying loans with oil shipments to China and Russia point to a sharper decline in overall Venezuelan oil revenue and exports than had been expected before the Jan. 28 sanctions,” Burkhard said.
US sanctions permit the import of Venezuelan crude oil until Apr. 28, but only if payment is made to a blocked bank account, he said. Since the Maduro regime will not have access to these funds, it will not allow exports to the US to continue, effectively dropping them to zero in the next month, Burkhard said.
He identified several other consequences, including:
• The alternative market for Venezuela’s extra-heavy crude is very limited. Other global refiners have the necessary processing capacity, but at a lower economic price. China and India currently are the two other major revenue-generating destinations for Venezuelan crude, but other sales to China and Russia now are used to repay outstanding loans.
• Even if there is an appetite for more Venezuelan oil in China, India, or elsewhere, trouble with export facilities could slow down or even thwart attempts to ship oil. Five countries account for most of the world’s heavy crude production capacity: Canada, Iraq, Mexico, Venezuela, and Saudi Arabia. All but Iraq have reduced production for various reasons: lack of investment, production curtailments, political disputes, and Organization of Petroleum Exporting Countries’ production cuts.
• US exports of about 60,000 b/d of naphtha for diluent in Venezuela’s diluted crude oil grade will stop. The country’s DCO exports in late 2018 were about 300,000–340,000 b/d, which required roughly 75,000–85,000 b/d of naphtha. “Venezuela has naphtha requirements beyond DCO. We estimate recent overall naphtha imports were about 130,000 b/d, coming from the US and India,” Burkhard said.
A major global supply shock is unlikely, Burkhard said. “Venezuela was once a major global oil power, producing more than 3 million b/d in the mid-to-late 1990s. It is a founding member of OPEC. But oil industry decay—it never fully recovered from the 2002–03 PDVSA strike and brain drain—means the US ban on Venezuelan oil imports is not a major global oil supply shock,” he said. North Dakota now produces more crude oil than Venezuela, he noted.
