The imposition of sanctions by the US against Venezuela’s state oil company PDVSA reminds the huge importance for oil of political events, IEA believes. Namely, in 2018, around 450 kb/d was shipped to the US. The decrease in exports also shows the collapse of production over the same period from 3.4 mb/d to about 1.3 mb/d today.
Now, Venezuela decided to ship oil to China as well, with shipments to India growing as well, and reaching 360 kb/d in 2017, but in 2018 they fell by 11%.
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As IEA notes, the sanctions are making it difficult for PDVSA to export oil. However, headline benchmark crude oil prices have not changed much. This is because, as far as crude oil quantity is concerned, markets could adjust after the first logistical challenges. In fact, stocks in most markets are ample and there is more spare production capacity available.
On the other hand, crude oil quality is another issue. Specifically, PDVSA’s oil is typically of the heaviest quality and requires the addition of significant quantities of imported diluents or domestic blending. With the sanctions, along with problems in producing its own lighter crudes, PDVSA will find it difficult to make enough on spec barrels available for export.
In addition, Venezuelan supplies reduced. In the meantime, Canadian exports of heavier, sourer crude, poured into the Gulf Coast to partly fill the gap. What is more, despite the preference of refiners for heavier crudes, huge volumes of cheap shale oil became available because exports were not allowed and stocks increased. When the US export ban was lifted and producers could sell oil abroad again, Gulf Coast importers once again needed the kind of crude produced by Venezuela and some Middle Eastern countries, IEA explains.
Until now, there is no sign that other producers plan to push more barrels into the market to balance shortfalls. Oil prices have not increased at an alarming rate because the market is still working off the surpluses built up in the second half of 2018. In quantity terms, in 2019 the US will rise its crude oil production by more than Venezuela’s current output. In quality terms, it is more complicated, IEA concludes.
