Venezuelan oil will boost US refiners but hurt Canadian producers
Refiners in the United States would be able to absorb the majority of the approximately 1 million barrels of crude oil per day that would be traded freely if the sanctions were lifted. The sanctions against the South American nation are lifted.
Canadian oil companies, who sell heavy crude similar to that of Venezuela, and small Chinese refiners would suffer higher costs, if Venezuelan crude was diverted to the U.S.
The U.S. president Donald Trump is asking for billions of dollars in order to rebuild Venezuela's oil sector, which has been neglected and is producing far below its potential due to decades of mismanagement. T
Rump said that the U.S. will run Venezuela and its petroleum sector after U.S. soldiers snatched Nicolas Maduro on Saturday from Caracas and transported him to New York for a drug trial.
U.S. GULF RIFERS BUILT TO HEAVY CRUDE
Oil companies would have to pump much more oil out of Venezuela. However, the country's current exports from China could quickly be?redirected to the United States if the U.S. lifted the blockade that Trump imposed on Venezuelan exports in December and removed sanctions against doing business with Venezuela.
According to U.S. Government data, several large U.S. Gulf Coast Refineries purchased and processed around 800,000 barrels per day of Venezuelan heavy oil before sanctions were imposed. Some were built to process this type crude instead of U.S. Light Oil. Analysts said that these refineries would be the first to benefit. If sanctions are lifted within the next few months, the Gulf Coast could absorb a significant portion of the 1 million barrels per day. However, these barrels will be cleared by pushing other heavy crudes out and competing aggressively in price," said Rommel Oates.
Analyst and trading sources say that Valero, PBF and Phillips 66 buy Venezuelan crude oil from Chevron and could purchase more. Barclays analyst Theresa Chen stated that Valero, the largest Gulf Coast refiner can process up to 400,000 bpd more crude oil.
Analysts noted that U.S. Gulf Coast refining plants can process 3 to 4 millions bpd heavy crude.
VENEZUELA COULD BUY EXXON AND OTHERS
Chevron exports to the United States about 150.000 barrels per day of Venezuelan crude. It is the sole U.S. major oil company operating in Venezuela with a Washington license that exempts them from sanctions.
Marathon Petroleum, Motiva Enterprises owned by Saudi Aramco and TotalEnergies purchased Venezuelan crude oil before the sanctions were imposed and could purchase more if available.
Chen, Barclays, said that Gulf Coast refiners were structurally positioned to receive Venezuelan barrels because of their waterborne access to these grades and familiarity with them prior to 2019 sanctions.
Chen said that the availability of cheaper crude for U.S. refiners could provide some relief in price to motorists.
U.S. refining companies' shares increased between 3% and a 10% on Monday. The S&P Energy Index, however, only rose 3%.
The refinery companies either did not respond immediately or declined to comment
REDIRECTING FLOWS
Since sanctions against Venezuela were imposed, U.S. refiners imported more crude oil from Canada, Mexico and Colombia. They also imported more crude oil from Brazil, the Middle East, and Brazil.
The Canadian crude oil would be displaced by increased U.S. imports of Venezuelan crude.
Canada is exporting 90% of its crude oil to the U.S.
On Monday, shares of Canadian Natural Resources (CNR) and Cenovus energy (CEN) fell between 5 and 6 percent.
"Canadian Heavy Crude had taken up the slack when Venezuela was struggling. It is a good thing for U.S. refinery, but bad news for Canada," said a source who wasn't authorized to speak publicly.
Randy Ollenberger is a managing director of BMO Capital Markets. He said that a long-term increase in Venezuelan oil production would put pressure on Canadian oil prices and strengthen the case for new pipelines to the Pacific Coast. Mark Carney, the Prime Minister of Canada, said that he expected Canadian crude oil to rise.
Teapots are Chinese independent refiners who are among the largest buyers of Venezuelan crude oil. They would look for alternatives if these supplies were redirected on a long-term basis.
Sources said that the teapots will likely switch to Middle Eastern and Canadian crudes. The switch to Canadian crude oil will increase the cost of Chinese refiners, since Venezuelan Merey is their cheapest supply.
Chinese teapot refineries will still be able to access discounted Russian and Iranian crude.
Sources said that Indian refiners Reliance Industries, Indian Oil Corp and Indian Oil Corp buy Venezuelan crude oil. They would also do so if the terms were favorable. Reporting by Arathy S. Somasekhar in Houston and Georgina M. McCartney, in Bengaluru; Amanda Stephenson, in Calgary; Nidhi V. Verma, in Delhi, and Siyi L. in Singapore. Editing by Liz Hampton, Rod Nickel and Liz Hampton.
(source: Reuters)
