Washington — Just over two weeks old, US sanctions on PDVSA, Venezuela's state-owned oil company, continue to alter global crude and diluent flows and are accelerating 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. 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:
** PDVSA sources estimate Venezuela's 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.
** Upgrader crude production by PDVSA and its international partners at five upgrader facilities has fallen by 334,000 b/d, a 43.8% decline from the overall 762,000 b/d capacity, because of a lack of diluent such as naphtha and light crude, according to a technical report reviewed by S&P Global Platts.
** Analysts with Barclays forecast Venezuelan oil output will fall anywhere from 350,000 b/d to 700,000 b/d by the second quarter of 2019.
** Venezuelan oil production is expected to fall to 500,000 b/d by the end of the year, Elliott Abrams, the US Department of State's special representative for Venezuela, said Wednesday at a US House of Representatives Foreign Affairs Committee hearing.
** Venezuelan production dropped 10,000 b/d month on month to 1.16 million b/d in January, down from 2.4 million b/d in December 2015, according to the latest S&P Global Platts OPEC production survey.
** Valero announced it brought more Canadian crude to its Gulf Coast refineries in the fourth quarter of 2018 and would likely increase those imports because of Venezuela sanctions.
** Chevron 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.
** Mexico is unlikely to boost any heavy crude exports to the US, because of declining production and contractual obligations for the majority of Pemex's output.
** The Trump administration remains confident that key ally Saudi Arabia will fill any oil supply gap caused by the sanctions, with refineries along the Gulf Coast told not to expect any crude release from the Strategic Petroleum Reserve. Saudi Arabia has been steadily slashing its output and cutting its exports to the US.
** The Alberta government has raised its oil production cap by 75,000 b/d, a move that could replace some lost Venezuelan barrels on 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.
** US sanctions are impacting the European sour market, with Urals crude potentially being diverted to the US and increased offers of Venezuelan crude seen in the Mediterranean, sources said.
** 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 under a swap arrangement, but is not expected to increase exports as a result of fears its US subsidiary could be affected by sanctions.
** Sanctions have altered naphtha trade flows, with tankers booked to carry product to Venezuela unable to be delivered and others rerouted as charterers seek new destinations.
** US market sources said they expect to see an increase in US light naphtha cargoes sailing to Europe for West Africa gasoline blending and that heavy naphtha barrels previously intended for Venezuela were likely to find homes in East Asia.
** China Oil ships about 50,000 b/d of naphtha to Venezuela as part of a loan arrangement.
** The US Department of the Treasury has said 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.
** Trump administration officials have downplayed the impact that sanctions will have on prices, arguing that US refiners have access to adequate supplies. During a Senate hearing last week, US Energy Information Administration Administrator Linda Capuano said prices had been impacted "modestly," as global flows have adjusted. Sandra Oudkirk, deputy assistant secretary in the State Department's Bureau of Energy Resources, said Wednesday that supply disruptions caused by sanctions were "unlikely," mainly due to the increase in US oil production and exports.
** US sanctions on Venezuela are expected to boost demand further for medium and heavy sour grades.
** Medium and heavy sour crude prices have already risen due to OPEC production cuts, Canadian output curtailments, as well as declining output from Venezuela and Mexico. Platts assessed US sour benchmark Mars crude at an $8.10/b premium to WTI February 11, up from a $3.25/b premium January 2.
** USGC coking margins show Western Canadian Select has an advantage relative to Mexico's Maya and Saudi Arabia's Arab Heavy crudes. WCS coking margins have averaged $8.06/b so far in February, compared with $2.80/b for Maya and $1.11/b for Arab Heavy, Platts data showed.
** 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 as numerous retail 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.
** All US exports of MTBE and other gasoline additives to Venezuela will be prohibited later this month, likely exacerbating the gasoline shortage there, sources said Tuesday.
** PDVSA's 955,000 b/d Paraguana Refining Center was operating at less than 21% of its 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 may soon be shut, 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 president, according to sources. Guaido plans to appoint Luisa Palacios, an expert in emerging Latin American markets and international affairs, as president of Citgo, sources close to Guaido said Wednesday.
** Miguel Quevedo, Maduro's oil minister, was in New Dehli this week, pressing India's top refiners to buying more Venezuelan crude. .
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