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APPEC: PetroChina to suspend direct imports of Venezuelan crude but China has other options

Highlights

PetroChina seen keen to comply with US sanctions on Caracas

But China to continue procuring Venezuelan crude through other means

Independent refiners find various alternative heavy crude grades

Singapore — State-run PetroChina will suspend directly buying crude oil from Venezuela, in accordance with US sanctions on the South American producer, but China will continue to procure Venezuelan oil through other means, company and industry sources said on the sidelines of the S&P Global Platts Asia Pacific Petroleum Conference in Singapore this week.

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Direct imports of Venezuelan crudes, almost all heavy sour, would officially come to an end from October, a source at PetroChina with close knowledge of the matter told Platts Wednesday.

"PetroChina will suspend taking Venezuelan crude," he said.

China taking less Venezuelan oil but finds other heavy crude suppliers

Sources from a number of independent refineries in China that regularly bought Venezuelan crude from PetroChina also told Platts that they had been notified by the state-run oil giant about the suspension of Merey crude supply.

However, PetroChina's suspension of direct imports does not necessarily mean that China will completely stop receiving Venezuelan crudes, industry sources said.

"China will continue to procure Venezuelan barrels through another company," said a senior industry official with direct knowledge of the matter. The official declined to identify the third party company that China would source Venezuelan crude from going forward.

Platts trade flow tracker cFlow showed more than 6.07 million barrels of crude loaded at Jose Port in Venezuela were on the way to China for October delivery.

PetroChina -- the US-listed arm under state-owned oil and gas giant China National Petroleum Corporation -- has been importing Venezuelan crude under the oil-to-loan deal between China and Venezuela.

Its total crude oil imports from the Latin American country was about 15 million mt in 2018, according company executives. The volume accounted for 90% of China's total crude imports of 16.63 million mt from Venezuela in 2018, data from the General Administration of Customs showed.

China's crude imports from Venezuela fell 13.4% year on year to 9.39 million mt over January-July 2019, according to latest data from the GAC.

OTHER OPTIONS

To compensate the potential shortfall in Merey crude imports from the fourth quarter, a slew of exotic and rare heavy crude brands, including Singma Blend and Malaysian Blend, emerged in the latest shopping list of independent refiners -- the key Merey crude buyers, Platts data showed.

"We will secure [crude] supplies with similar specification to [Venezuelan] Merey," a feedstock procurement manager at a Shandong-based independent refinery said.

The first cargo of Singma Blend crude arrived in China in July and as of Wednesday the country had imported a total of 565,000 mt, Platts data showed.

Singma, which was booked as of Malaysian origin by the China customs, is a heavy sour crude with an API gravity of 16.3 and sulfur content of around 2.78%, according to the latest assay of the grade seen by Platts.

Market sources said independent refiners also took at least 350,000 mt of Malaysian Blend, or Mal Blend as it's also called, which has similar quality as Merey.

In addition, independent refiners continued to take alternative heavy-end crude grades such as Canadian Access Western Blend, Borealis Heavy Blend and Cold Lake Blend.

The independent refiners total imports of the three Canadian Grades surged 230% year on year to 723,000 mt in January-August, Platts data showed.

SANCTIONS COMPLIANCE

PetroChina's decision shows the Chinese state-run oil company's willingness to comply with US sanctions on Venezuela, Asian refinery executives and trade sources said on the sidelines of the APPEC conference this week.

"I guess this is one way that could possibly pave the way to ease tensions between Washington and Beijing before a new round of trade talks next month," said a crude feedstock trading manager at PetroChina's trading arm Chinaoil.

The US has ramped up sanctions on oil flows out of Venezuela and Iran, but has sanctioned only one Chinese company for violating US restrictions on Iran's oil sector -- state-owned trading company Zhuhai Zhenrong Ltd and its chief executive.

Analysts said that the Trump administration was unlikely to sanction a major Chinese bank, even as imports of Iranian and Venezuelan crude continue, due to the impact on the global economy if the trade dispute between the two nations dragged on.

During a press briefing at the World Energy Congress in Abu Dhabi Monday, US Deputy Energy Secretary Dan Brouillette said the US was "very concerned" about China's purchases of Iranian and Venezuelan crude.

Analysts have also told Platts that China's future compliance with US sanctions on oil exports out of Venezuela and Iran may hinge on the progress of ongoing trade talks with the US.

"I think the Chinese have thus far tried to thread a variety of needles, with domestic constituencies and the Trump administration," said Richard Nephew, a senior research scholar at the Center on Global Energy Policy at Columbia University and the principal deputy coordinator for sanctions policy at the US State Department during the Obama administration.

"If they decide they no longer want to, then I think that will also affect their attitude to US-sanctioned oil."

-- Oceana Zhou, oceana.zhou@spglobal.com

-- Analyst Daisy Xu, daisy.xu@spglobal.com

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

-- Venezuela News Desk, newsdesk@spglobal.com

-- Edited by Haripriya Banerjee, haripriya.banerjee@spglobal.com