The US Treasury Department has extended for three months an order blocking creditors of Venezuela's state-owned oil company PDVSA from taking control of US refiner Citgo as a result of missed payments on its 2020 bonds.
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The order, which was set to expire July 21, now runs until Oct. 21, the Office of Foreign Assets Control said in a general license under its Venezuelan sanctions regulations.
The move shows a continuity of sanctions enforcement from the former Trump administration, although many analysts expect the Biden administration to eventually grant Venezuela some relief on humanitarian grounds.
PDVSA missed a key payment on the 8.5% bonds in October 2019, which opened the possibility of it losing US refiner Citgo, its most valuable overseas asset.
Venezuela's creditors have sought to collect on old debts by seizing Citgo assets through a number of lawsuits in US courts.
In November 2019, the 3rd US Circuit Court of Appeals in Philadelphia upheld a decision allowing defunct Canadian miner Crystallex to auction shares in Citgo to collect on a $1.2 billion judgment related to Venezuela nationalizing its gold mine. The US Supreme Court in May 2020 declined Venezuela's request to reconsider the ruling.
While the Court of Appeals' decision stands, any creditor seeking to seize Citgo assets would need specific approval from Treasury's Office of Foreign Asset Control to avoid sanctions enforcement.
The latest license on the bond default issue is the first by the Biden administration and continues an approach started under the former Trump administration, which wanted to prevent Venezuelan creditors from seizing Citgo. Such a scenario was seen as devastating to the interim administration of Juan Guaido, the self-declared interim president of Venezuela, whom the US government recognizes.
As it did during the Trump administration, Treasury on July 20 again encouraged PDVSA and bondholders to keep negotiating a plan to restructure or refinance the debt, saying OFAC would have a "favorable licensing policy toward such an agreement."
Venezuelan oil production slipped to 500,000 b/d in June, down from 540,000 b/d in May, according to the latest estimate by the US Energy Information Administration.
S&P Global Platts OPEC survey put June production at 550,000 b/d, up 10,000 b/d month on month.
Venezuela pumped 2.4 million b/d in 2015, before sanctions, mismanagement and widespread power outages decimated its oil sector.
Treasury took modest action July 12 to ease the US sanctions, allowing US LPG producers to export supplies to Venezuela, where propane shortages have forced people to cook on wood stoves.
S&P Global Platts Analytics said the move falls short of a policy change that would help PDVSA restore supply volumes lost to sanctions, such as crude-for-diesel swaps with overseas refiners.
"Venezuela has little oil production left to lose at this point, but the potential for a humanitarian policy gesture by the Biden administration underlies our forecast for crude output to rise from 500,000 b/d currently to 700,000 b/d by end-2022," said Paul Sheldon, chief geopolitical adviser for Platts Analytics.
On the other hand, Sheldon said, the tricky politics of relieving pressure on the Maduro regime and additional supply risks like China's $30/b tax on bitumen imports makes a fall to 300,000 b/d "unsurprising without US sanctions relief."