Venezuelan oil will boost US refiners but hurt Canadian producers
Refiners in the United States would be able to absorb most of the approximately 1 million barrels of crude oil per day if U.S. Sanctions on Venezuela are lifted. According to a report on Tuesday, the U.S. has been in talks with Venezuela about exporting crude oil from the South American country to the United States. Sources say that U.S. oil executives will visit the White House Thursday to discuss Venezuela.
The increase in Venezuelan oil exports may hurt Canadian firms that sell similar heavy oils, as well as small Chinese refiners who would be forced to pay higher prices if Venezuelan crude was diverted to the United States. Donald Trump, the U.S. president, wants U.S. companies to invest billions in rebuilding Venezuela's oil sector. The industry is deteriorated and produces well below its capacity due to decades of mismanagement. Trump said that the U.S. will run Venezuela's oil sector, after U.S. forces seized President Nicolas Maduro on Saturday from Caracas and transported him to Manhattan?to face drug charges.
U.S. GULF RIFERS BUILT TO HEAVY CRUDDE It would require years of effort for oil companies in order to pump a great deal more oil out of Venezuela. If the U.S. lifts the blockade that Trump placed on Venezuelan exports in December and removes sanctions against doing business with Venezuela, the country's current exports to China could be quickly redirected to the United States.
According to U.S. Government data, several large U.S. Gulf Coast Refineries purchased and processed around 800,000 bpd Venezuelan?heavy crude oil. Some were built to process this type rather than U.S. Light Oil. Analysts said that these refineries would benefit first.
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 competing on price and pushing out other heavy crudes," said Rommel oates, founder of the software company Refinery Calculator.
Analysts and trading sources say Valero and PBF Energy already purchase Venezuelan crude from Chevron and that they could buy more. Barclays analyst Theresa Chen stated that Valero, the largest Gulf Coast refining company, could process up to an additional 300,000 bpd.
Analysts noted that U.S. Gulf Coast refining plants can process 3 to 4 million barrels per day of heavy crude. Phillips 66 said on Tuesday that its two U.S. Gulf Coast refining facilities could process up to a few hundred thousand bpd Venezuelan 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.
Barclays' Chen said that Gulf Coast refiners were structurally favored to receive Venezuelan barrels because of their waterborne access, and they had a history with these grades before the 2019 sanctions.
Chen said that the availability of cheaper crude for U.S. refiners may provide some relief in price to motorists.
U.S. refining companies' shares increased between 3% and ten percent on Monday. The S&P Energy Index, however, only rose 3%.
Refining companies either did not respond immediately or declined to make a comment. Chevron didn't immediately respond to questions about whether it would sell more crude oil to U.S. refining companies.
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, Mexico and Colombia.
The U.S. imports from Venezuela would displace the Canadian crude oil, and most importantly, those imported from Canada. Imports from Venezuela will displace these crudes, primarily Canadian.
Canada will export 90% of its crude oil to the U.S. by 2025.
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. "The grades will compete which is good for U.S. refinery but bad for Canada," said a source in the refining industry who was not authorized to?on record. 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 make the case for the new Canadian export pipeline towards the Pacific coast. Mark Carney, the Prime Minister of Canada, said that he expected Canadian crude oil to remain competitive.
DILEMMA OF CHINESE RIFERS
Teapots are Chinese independent refiners who are among the largest buyers of Venezuelan crude oil. If these supplies were redirected in the long term, they would look for alternatives.
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 again in the future if terms are attractive. 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)
