Venezuela has spent the best part of the past six years under onerous sanctions, which since 2019 in particular have dramatically hampered the nation’s ability to both produce and export its abundant reserves of crude oil. There have been tweaks to the sanctions regime over the last few years, the most notable of which for the tanker market occurred during November 2022, whereby the US government permitted Chevron to expand their activities and crude exports in the country.
With the crude complex remaining exceptionally tight, given the significant OPEC+ production cuts, coupled with the significant drawdown of inventory levels, both commercial and strategic, oil prices have been elevated. This price environment has clearly prompted the US government to explore methods by which relief from these higher prices can be found.
The latest news overnight is that the US has suspended certain Venezuelan sanctions that have been in place over recent years. Key for the oil and tanker markets is the ‘authorizing of all transactions that are related to oil and gas operations in Venezuela’, including the ‘sale of oil and gas from Venezuela to the United States and other jurisdictions. The lifting is initially temporary and pursuant to the Venezuelan government’s further commitments made during recent meetings and their ‘continued concrete steps towards a democratic election by the end of 2024’. At present, the lifting of sanctions is valid until 18th April 2024, with further extensions possible, although the US officials involved have indicated that sanctions can be swiftly reapplied should further steps not be taken.
The lifting of sanctions will however lift the veil on a Venezuelan oil market that has been decimated by the existing sanctions and resultant lack of investment that this has brought for the industry. Latest August 2023 production data places Venezuelan crude production around 0.79m b/d, a far cry from a production peak just north of 3m b/d, although still above the absolute nadir of production of 0.34m b/d seen in early 2020. It is important also to distinguish that whilst sanctions have impacted production, the wider concerns around lack of investment and infrastructure maintenance, predating the implementation of the current sanctions.
The profile of Venezuelan exports at present remains largely restricted to a handful of key buyers, the profile of which has changed significantly since the previous targeted permissions granted to Chevron. The US has become the largest importer of Venezuelan barrels, with a total of 5.2m mt taken so far across 2023. This has significantly limited available barrels heading into other buyers, with much reportedly sold on a crude for debt payment basis, especially into China.
With sanctions now lifted, it is expected that the immediate impact on the tanker market remains limited, given the relatively small volumes of crude currently available from Venezuela. Most likely is that the market continues to see a significant amount crude heading short haul back into the US, which remains predominantly an Aframax trade. The US will also potentially be looking at the Venezuelan barrels as a prime candidate for restocking some of the lost SPR releases of sour barrels. Owners are unlikely to be falling over themselves in a rush to lift out of Venezuela, given the significant uncertainty around the health and maintenance of export terminals, along with the ongoing threat still held by the US for snapping sanctions back onto the country. Even pre sanctions, Venezuelan lifting represented a trade that paid premiums on regional USG rates, on the basis of incentivising lifters to ballast down from the USG and considering the need for any Venezuelan crude to be heated. Any volumes heading out for export, will therefore be seeing some premiums in order to compensate owners for these additional factors. Ultimately, there will likely be some tightening of the Atlantic basin and especially the USG market, as some market vessels will be taken out of the existing pool of available tonnage in order to lift new market Venezuelan barrels. The extent to this tightening very much depends on the ability of Venezuela to recover lost ground in terms of both production and exports.
The situation remains fresh and fluid and we will keep a close eye on developments and how the tanker market is reacting to this latest significant change in the geopolitical landscape.