Venezuelan political turmoil hits US oil refiners

Venezuelan political turmoil hits US oil refiners

Shares in PBF Energy and Valero Energy fall on news from Caracas

Gregory Meyer in New York and David Sheppard in London

The prospect of further falls in Venezuela’s oil output after the US and Canada embraced its opposition leader as interim president caused tremors in energy markets, underlining the Opec member’s important, if fading, stature as a producer. 

Venezuela’s crude oil output has plunged in recent years as the economic and political crisis in the country has all but paralysed its energy industry. Its production in December was 1.1m barrels a day, or less than 1.5 per cent of global supply, and down from 1.9m barrels a day in 2017, according to Opec’s monthly report. 

The US remains a significant buyer, however. US oil refineries imported an average of 500,000 b/d of Venezuela’s heavy, high-sulphur “sour” oil in the first 10 months of 2018. This made it the fourth-largest supplier after Canada, Saudi Arabia and Mexico, according to the US Energy Information Administration. 

The biggest importers are refineries ringing the US Gulf of Mexico operated by Chevron, PBF Energy, Valero Energy and Venezuela-controlled Citgo, EIA data show. Shares of the former three declined amid a rally in broader US stocks, with PBF 1.9 per cent lower and Valero down 2.7 per cent. 

“Refiners on the US Gulf Coast are very concerned. We don’t have all the details yet but if we do lose Venezuelan barrels, even if it means some supplies can be rerouted from Asia, it will still cause a huge disruption,” said Amrita Sen, chief oil analyst at Energy Aspects, a consultancy. 

Values of competing grades of sour crude have rallied this month. The rise continued after Wednesday’s announcement. 

West Texas Sour crude sold for a discount of just 35 cents a barrel below US light, sweet benchmark West Texas Intermediate, compared with a discount of $2.50 below WTI last week, according to Bloomberg data. WTI futures climbed 0.1 per cent to settle at $52.62. 

World supplies of heavier oils had already been curtailed after cuts agreed by Opec and allied countries late last year. “If the US does not import heavy crude from Venezuela, they will have to buy it from elsewhere,” said Amir Richani, analyst at ClipperData, a tanker tracking service. 

A steep fall in global oil prices over the past three months may have reduced fears in Washington of a damaging price jump should the Trump administration take action against Venezuela’s oil exports to punish the regime of Nicolás Maduro, who began a second term as president on January 10. 

The White House had a “wide spectrum of tools” to put pressure on Venezuela, said Michael Cohen, oil analyst at Barclays. Among them were restrictions on sales of US diluent — a thinning agent used in heavy, viscous crude — or an embargo on Venezuela’s oil exports to the US, he said. 

Recognising the opposition as an alternative government to Mr Maduro’s “could allow the international community to freeze and divert assets and revenues, including proceeds from oil exports, the effect of which could be even larger than an embargo”, he said in a note, adding that a production decline of up to 700,000 b/d in 2019 was “a real possibility”. 

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