The US has imposed sanctions against Venezuela’s state-owned energy company Petroleos de Venezuela (PDVSA) in order to choke Venezuelan oil revenues. This development will bar Venezuela from exporting crude oil to the US until Nicolas Maduro, the Venezuelan president, steps down. The sanctions will also stop Venezuela’s imports of the diluents (light crude and naphtha) that are needed for blending with the extra-heavy oil from the country’s Orinoco Belt.
These measures could halt Venezuela’s crude exports. Namely, Rajesh Verma, Lead Analyst, Tanker Shipping, explains that even if Venezuela finds other sources for diluents and buyers for its crude, its crude exports to the US will stop as long as the sanctions are in place.
Currently, the US is the largest importer of the Venezuelan crude and imported around 500,000 bpd during January-October 2018. Now, only complex refineries in Asia will be able to process the heavy sour crude from Venezuela. Nevertheless, this means that Venezuela will have to heavily discount its crude in order to displace the heavy Middle Eastern crude.
After the US, China and India are the next biggest buyers of Venezuelan crude. Specifically, state-run refineries in China and private sector refineries in India have enough demand for heavy crude to absorb the diverted Venezuelan crude barrels.
Another important factor, is the fact that the US Gulf Coast refineries will find it difficult to replace heavy Venezuelan crude with supplies from nearby sources, due to the limited production in Mexico and logistics problem with Canadian crude exports. Thus, US Gulf refiners will have to find other supplies in the Middle East.
Effectively short-haul US crude imports from Venezuela are likely to be replaced by long-haul imports from the Middle East. Similarly, relatively short-haul Asian imports from the Middle East could be replaced by the long-haul imports from Venezuela
Mr. Verma notes.
Finally, regarding the tanker market’s perspective, the possible increase in long-haul trade will support the total tonne-mile demand. However, for the individual segments it will be a mixed bag with VLCCs benefiting and Aframaxes losing. According to Drewry's estimates, the possible change in the crude trade pattern because of sanctions could increase VLCC demand by 24 vessels per year. Nonetheless, it could reduce the demand for Aframaxes by some 15 vessels annually.