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Factbox: PDVSA sanctions affect flows, accelerating output declines

Washington — Just more than a week old, US sanctions on PDVSA, Venezuela's state-owned oil company, have already had a dramatic impact on global crude and diluent flows and likely hastened the already historic collapse of the South American nation's oil sector.

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The sanctions, which the Trump administration announced January 28 and are expected to remain in effect until Venezuelan President Nicolas Maduro leaves office, have caused US Gulf Coast refiners to scramble for new sources of heavy crudes and have cut off flows of US refined products and diluents to Venezuela. But the sanctions have yet to affect oil prices significantly.

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That could change, analysts believe, as the crisis in Venezuela drags on.

Here's a look at the market impact of PDVSA sanctions so far:

TRADE FLOWS

**PDVSA sources estimate that Venezuela total crude output will fall 300,000 b/d to below 800,000 b/d by the end of February because of the loss of US naphtha imports, which are used as a diluent to blend Venezuela's heavy Orinoco Belt crude.

**Analysts with Barclays forecast Venezuelan oil output to fall anywhere from 350,000 b/d to 700,000 b/d by second-quarter 2019. "Venezuela's oil production outlook remains highly contingent on the political situation," the analysts wrote.

**Venezuela produced 1.17 million b/d in December, down from 2.4 million b/d in December 2015, according to the latest S&P Global Platts OPEC production survey.

**Valero last week announced it brought more Canadian crude to its Gulf Coast refineries in Q4 2018 and would likely increase those imports because of Venezuela sanctions. Valero, which froze renegotiations last week with PDVSA over an oil supply contract, imported nearly 165,000 b/d of Venezuelan crude in November, according to the US Energy Information Administration.

**Chevron last week launched a contingency plan to maintain supply at its 330,000 b/d refinery in Pascagoula, Mississippi, which had been running an average of 70,000-75,000 b/d of heavy crude from Venezuela. With "alternate sourcing," Chevron has enough supply for the refinery through at least March, according to Mike Wirth, the company's CEO.

**Chevron imported medium and heavy crudes from Brazil, Iraq and Mexico in November, according to EIA data, while Valero imported crude from Canada and Mexico.

**Mexico is unlikely to boost any heavy crude exports to the US, because of declining production and contractual obligations for the majority of Pemex output.

**The Alberta government last week raised its oil production cap by 75,000 b/d, a move which could replace some lost Venezuelan barrels in the US Gulf Coast, but takeaway capacity constraints are expected to limit any increase Canadian flows to the Gulf to roughly 100,000 b/d, just one-fifth of the crude lost from sanctions.

**The US is pressing Saudi Arabia and its Gulf allies to boost crude supplies while sanctions are in place, but Saudi Arabia has been steadily slashing its output and cutting its exports to the US.

**The US sanctions immediately cut off an estimated 120,000 b/d of naphtha that the US ships to Venezuela from Citgo, PDVSA's US refining subsidiary.

**India's Reliance Industries provides PDVSA with about 65,000 b/d of diluent to Venezuela under a swap arrangement, but is not expected to increase exports on fears that its US subsidiary could be affected by sanctions.

**China Oil ships about 50,000 b/d of naphtha to Venezuela as part of a loan arrangement.

**The US Treasury Department clarified Friday that non-US entities have three months to wind down transactions with PDVSA that involve the US financial system or US commodity brokers, measures which analysts expect will complicate oil flows between PDVSA and even non-US markets.

PRICES

**Trump administration officials have downplayed the impact that sanctions will have on prices, claiming that US refiners have access to adequate supply. During a Senate hearing Tuesday, EIA Administrator Linda Capuano said that prices have been impacted "modestly," as global flows have adjusted.

**US sanctions on Venezuela are expected to further raise demand for medium and heavy sour grades.

**Medium and heavy sour crude prices have already risen on OPEC production cuts, Canadian output curtailments, as well as declining output from Venezuela and Mexico. S&P Global Platts assessed US sour benchmark Mars crude at a $5.50/b premium to WTI Monday, up from a $3.25/b premium January 2.

**USGC coking margins show Western Canadian Select as advantaged relative to Mars and Mexican Maya crude. WCS coking margins ended Monday at $7.67/b, compared with $2.29/b for Maya and $3.35/b for Mars, Platts data showed.

INFRASTRUCTURE

**Tankers arriving at the PDVSA-run Isla Refinery on Curacao, which has processed all the crude it received in January, have refused to unload because of sanctions.

**Russia's Rosneft, which is developing five oil projects with PDVSA in Venezuela, said it does not expect crude production at those projects to decline in 2019. Rosneft's share in Venezuelan production averaged 68,000 b/d in 2018.

**PDVSA began a partial rationing of gasoline throughout Venezuela Sunday as numerous gas stations in Caracas ran out of fuel. Gasoline inventories have been exhausted while levels of diesel and LPG are enough to last two days on average, according to a PDVSA technical report.

**PDVSA's 955,000 b/d Paraguana Refining Center was operating at less than 21% capacity this week, while the 187,000 b/d Puerto La Cruz refinery was running at less than 12% of its capacity. The 140,000 b/d El Palito refinery has been shut down and the Isla Refinery on Curacao may soon be shut down, according to sources.

**While Maduro has given no indication he is willing to relinquish power, self-declared Venezuelan interim president Juan Guaido has announced plans to revamp Citgo's board and appoint Gustavo Baquero, an oil industry veteran and university professor, as PDVSA's president, according to sources.

-- Brian Scheid, brian.scheid@spglobal.com

-- Jeff Mower, jeff.mower@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com

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