Will Venezuela be able to find buyers of its oil to replace customers lost as a result of US sanctions?
At stake is approximately 500,000 barrels per day exported by state-owned PDVSA to US refineries. That’s almost one-half of Venezuelan daily output.
Whether US sanctions cause PDVSA exports to fall further could have consequences for the global oil market and in Venezuela where Nicolas Maduro is fighting to stay in power.
One sign of how PDVSA is coping with sanctions should come from crude inventories.
Increases in the amount of oil held in storage could indicate trouble finding replacement customers, causing stocks to build.
The key place to look is 40 km west of Puerto La Cruz along Venezuela’s Caribbean coastline.
There, you will find the José Antonio Anzoátegui Industrial Complex. Also known as El Jose, the facility is home to storage tanks, crude upgraders and the largest port in the country. It is the epicenter of the Venezuelan oil industry.
In an earlier blog, we discussed those upgraders, which are critical to turning heavy crude from the Orinoco Belt into export grades.
Ursa measures crude inventories every week at 150 sites around the world, including El Jose and five other locations in Venezuela, using synthetic aperture radar (See figure 1).
Figure 1
Credit: Liam Cullen/Ursa
With the sanctions in effect only since January 28, it’s too soon to expect builds to have begun as a result of the export slowdown. We’ll continue to monitor this story as it unfolds.
Our latest measurements showed El Jose tanks at 65% of capacity, leaving plenty of room to fill. El Jose spent most of 2018 between 60% and 70%, a remarkable period of stability given the backdrop.
But when you widen the geographic scope a different picture emerges.
We looked at oil storage at the six sites we cover in Venezuela plus those in the Caribbean where PDVSA owns or leases tanks.
Next, we removed tanks positioned at refineries or more inland, leaving us with tanks associated with export terminals.
The locations in Venezuela are Bajo Grande, El Jose, El Palito, Paraguana, Puerto La Cruz and Puerto Miranda. The Caribbean spots are Bonaire, Emmastad (Curacao), Sint Nicolaas (Aruba) and St. Eustatius.
When you aggregate storage across these locations, the filtered results show a draw materializing from mid-June 2018 until present (See Figure 2)
Total stocks for Venezuela plus the select Caribbean sites fell from 31.7 million barrels the week ending June 14 to 25.5 million barrels at the end of January, a decline of 19.5%.
Figure 2
Source: Ursa
This trend of falling stocks could reveal something interesting. It’s possible Venezuela needed to draw inventories because the volume supplied to the market was greater than production.
Venezuela has miraculously kept production above 1 million bpd, though declines have been substantial.
S&P Global Platts estimated Venezuelan output at 1.16 million bpd in January, down from an average output of 2.4 million bpd from 2011-15.
The potential for further declines hasn’t been felt in crude futures, with prices nearly unchanged a week after sanctions began.
However, prices for sour crude similar to the type Venezuela mainly exports have shot up relative to sweet crude (See Figure 3).
Figure 3
Source: NYMEX via MarketView
This development has benefited producers in the Middle East, Mexico and Canada, to name a few, which compete against Venezuela in the sour crude market.
US Gulf Coast refiners, configured to run on heavy sour crude, will be among those looking for supply from those places to compensate for missing Venezuelan barrels.
PDVSA stopped tankers bound for the US from delivering cargoes unless shipments were pre-paid. The US sanctions prevent US customers from transferring funds to PDVSA accounts controlled by the Maduro regime.
What do you think? Will US sanctions have much impact on the oil market and inside Venezuela?
