US sanctions threat over tankers going to Venezuela unsettles market

London — The global tanker market is growing anxious as the US is considering imposing additional sanctions on oil tankers that have recently loaded oil from Venezuela, as it seeks to put a stranglehold on the Latin American country's oil revenues.

Several shipping sources said the US government is looking to penalize over 50 tankers that have either loaded from Venezuela or have carried Venezuelan oil via ship-to-ship transfers.

If these sanctions did come into effect, it could affect a large proportion of the crude oil tonnage, leading to a surge in freight rates, sources said.

This has already prompted some charterers especially those in the US, Brazil and even in China to avoid ships that recently visited Venezuela.

"We are getting lots of charterers asking us to avoid ships that called ex-Venezuela," a shipbroker said.

"They want to pre-empt a scenario where the US might sanction more tankers. Obviously, if it does actually happen, then rates will start to soar as there are so many ships especially from the big Western fleet owners that have travelled to Venezuela for a voyage," he added.

More than 200 tankers, varying from Handysize (which can carry over 30,000-mt cargoes) to VLCCs (around 260,000 mt) have called at Venezuela over the past 12 months, according to data from S&P Global Platts trade flow tool cFlow.

On June 2, the US Department of the Treasury sanctioned four shipping companies and their crude tankers for continuing to facilitate oil trading with Venezuela. This is the latest round of sanctions on Venezuela imposed by the US since last year.

Sources said the US is now studying options to expand this list and could affect as many as 50-60 tankers including VLCCSs, Suezmaxes and Aframaxes.

"We continue to engage with companies in the energy sector on the possible risks they face by conducting business with PDVSA," a US State Department spokesperson said when asked about additional sanctions against tankers.

But a spokesperson from the US Department of the Treasury said, the Treasury's Office of Foreign Assets Control "does not comment on possible or pending investigations, including to confirm whether or not one exists."

Extra precautions

Analysts said oil traders had been spooked by the US move to impose sanctions on four tankers, and with the growing likelihood of the list being expanded, many companies are taking extra precautions.

Alphatanker, a market analysis division of shipping brokerage BRS, said that 7%, 9% and 7% of the total VLCC, Suezmax and Aframax fleets, respectively have called at Venezuelan ports in the past 12 months, which highlight the potential for disruption to the tanker market if sanctions were expanded.

The US imposed sanctions on six Chinese companies in September 2019, including two entities under Cosco Shipping, which pushed some VLCC freight rates to all-time highs, spurred on by tightening of tonnage. These sanctions were removed earlier this year.

"Even without additional sanctions, it is certain that there will now be even fewer tankers willing to call at Venezuelan ports and aside from PDVSA, [Russian] and Cuban importers, very few companies will be willing to purchase Venezuelan barrels," analysts at Alphatanker said in a recent note.

"This will undoubtedly see Venezuelan crude production and exports fall further as both imports of naphtha and willing crude buyers dry up."

Venezuelan oil production plunged to just 550,000 b/d in May, down 7,000 b/d month on month, according to the latest S&P Global Platts survey of OPEC production.

But crude production is poised to slump further as the oil sector is being crippled by the US sanctions

"Our forecast for Venezuelan crude supply to remain capped at 300,000 b/d hinges on few buyers willing to risk US sanctions after Rosneft ceased trading operations, as well as persistent refining problems," S&P Global Platts Analytics said in a recent note.