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Tanker Demand to Suffer Venezuelan Blow

The tanker market is set for another blow emanating from the latest developments from the Venezuelan oil crisis. In its latest weekly report, shipbroker Gibson said that “in January 2019 the Trump administration announced tough sanctions against PDVSA, designed to halt US imports of Venezuelan crude. The US government also blocked access to its financial system for PDVSA transactions. Overall, sanctions have had the desired effect. Crude trade to US refineries came to a halt since February, down from approximately 0.5 million b/d in 2018. US also stopped exporting clean petroleum products (CPP)to Venezuela, most notably naphtha, used to dilute extra heavy grades to make synthetic crude for exports. Venezuela was largely unable to find a replacement for US clean products, with the volume of CPP imports into the country down by more than 50% compared to levels in 2018. Meanwhile, the economic and political situation in the country continued to deteriorate, while the mounting shortage of skilled personnel, financing and badly needed repairs/maintenance for oil installations translated into a further decline in the country’s crude production. The IEA estimates that Venezuela’s output declined between January and July by 470,000 b/d, down to 0.81 million b/d, its lowest level in decades”.

The shipbroker added that “despite the decline in absolute volumes, long haul crude shipments to Asia (mainly to China and India) have continued, being backed by debt to Chinese and Russian companies. In fact, long-haul trade has somewhat increased in recent months. Preliminary results from ClipperData show that the country’s crude exports to the East averaged around 675,000 b/d during the 1st half of 2019, up by nearly 100,000 b/d versus the same period last year. However, these volumes are still below the levels seen in 2016/17. It also appearsVenezuela has made some progress in adapting to challenges faced. In July Argus reported that PDVSA started the transition of its inactive heavy crude upgraders, used to produce synthetic crude mainly for US sales, into blending sites to maximise production of Merey blend, which is in demand for Asia buyers. AIS data supports this statement, with shipments of the grade up this year versus the historical trend. More recently, it has also been reported that PDVSA signed an agreement with a Chinese engineering company to repair Venezuela’s refineries. Venezuela will repay in oil products”.

Gibson also noted that “taking into account these developments, it is perhaps not surprising to see fresh US sanctions, with the Trump administration freezing all Venezuelan government assets in the US. The latest sanctions do not explicitly sanction nonUS companies that do business with the US; however, the order threatens to freeze US assets of any entity determined to have “materially assisted” the Venezuelan government. Most likely, it is up to the US authorities to decide what “material assistance” actually means and so the willingness to sanction directly Russian and Chinese companies is yet to be tested”.

The shipbroker concluded that “all in all, the position of the Maduro government appears increasingly uncertain, with the latest sanctions only adding to a long list of problems faced. Reuters has already reported that China National Petroleum Corp (CNPC) has halted August loadings from Venezuela, as the company worries that it could be hit by secondary US sanctions. Potentially, Venezuela’s crude output could decline further and with it, long haul trade to the East. On its own, this undoubtedly is a negative development for tanker demand; however, with rising output out of the US, Brazil and robust prospects out of neighbouring Guyana, this will simply slow but not stop the growth in long haul trade from the Americas to the East”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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