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Cargoes of Venezuela-bound US diluent halted by Trump administration sanctions

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Several cargoes of US diluent bound for Venezuela were abruptly halted Tuesday following the Trump administration sanctions on PDVSA, sources said.

On Monday, the Treasury Department imposed new sanctions on PDVSA, Venezuela's state-owned oil company, and immediately shut down all US exports of diluent to that country. PDVSA uses naphtha from the US to thin its heavy crude so it can be shipped.

Several US shippers had diluent shipments in process to Venezuela when the sanctions were announced Monday and now need to find new buyers or other alternatives, Ginger Faulk, a partner with the Eversheds Sutherland law firm, said Tuesday.

Many of these shippers are currently seeking licenses from Treasury's Office of Foreign Assets Control which would allow them to complete these in process deliveries to Venezuela.

A Treasury spokesman declined to comment Tuesday.

According to S&P Global Platts data, PDVSA's US refining subsidiary, Citgo, has placed the Horizon Aphrodite on subjects to load 38,000 mt of refined products for a US Gulf Coast-Venezuela voyage. Platts cFlow trade flow software shows the vessel departed Lake Charles, Louisiana on January 27, and is currently en route to Venezuela's Jose Terminal, but at an unusually slow speed of 2.1 knots. Average steaming speed for a MR tankers is 12-13 knots.

Platts data shows the Medium Range tankers Elka Glory and Maersk Tacoma were on subjects for Citgo on USGC-Venezuela and USGC-Caribbean voyages loading January 29 and February 1, respectively. Both were moored at Corpus Christi, Texas, on Tuesday.

STEADY SUPPLIES

The US ships about 120,000 b/d of petroleum products to Venezuela, according to S&P Global Platts Analytics, and exports about 50,000 b/d of naphtha to Venezuela, according to Nicolas Daher, an oil analyst at FGE.

Losing access to US diluent would put between 200,000 and 250,000 b/d of Venezuelan oil production at risk, Daher said.

Without diluent from the US, PDVSA may be unable to produce and market its crude "not just for revenue generation purposes, but also in fulfillment of in-kind payments on oil-backed debts to China," analysts with ClearView Energy Partners said in a statement.

John Auers, executive vice president of Turner, Mason & Co., said the prohibition on US diluent exports to Venezuela could cripple the South American nation's already reeling oil output.

"It very well could be that this is the bigger issue for Venezuela because if they don't get [diluent] they won't be able to export to any market," Auers said. "It's going to put some real pressure on the [Maduro] government."

Auers said that PDVSA is likely "scrambling" to find new sources of naphtha, potentially in Europe and Asia, but said new supply could take weeks or months.

Daher said a likely source of replacement diluent barrels would be Africa, which already sends naphtha to Latin America. Algerian cargoes routinely go to Brazil, for example.

These barrels would be more expensive that US supply, however, and their substitution could worsen PDVSA's financial situation, Daher said. It would also take time to secure new sources, potentially leading to supply gap of up to several months.

(Correcting to remove reference to the Ipanema Street clean tanker vessel. The Ipanema Street was not anchored at a Venezuelan port, as was incorrectly reported by S&P Global Platts.)

-- Brian Scheid, with Chris van Moessner in New York, and Barbara Troner in Houston, newsdesk@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com

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