The world’s biggest crude user just slapped de facto sanctions against the holder of the largest oil reserves. The market reaction: meh. Major crude benchmarks have made only modest gains since the White House effectively blocked the US refineries from importing crude from PDVSA, the state-owned oil company that controls Venezuela’s untapped reserves.While the sanctions will force a re-routing of global oil trade flows, they’re unlikely to have a big impact on the overall supply and demand picture.Unlike penalties against Iran that rocked oil markets last year, the sanctions are only targeted at US refineries, the biggest buyers of Venezuelan crude. Countries like China and India, the second- and third-biggest importers, will be able to swoop in and buy the crude, while American refineries can take more from the Gulf of Mexico or the Middle East.
“In the very near term we may not see much impact to the actual flow of Venezuelan crude oil,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “If more Venezuelan crude oil is consumed in Asia, then Asian buyers would purchase less oil from the Middle East or other suppliers, freeing up those volumes to come to the US.” If the White House tries to expand the embargo to other countries, then the supply disruption could be bullish for prices in the near term. It could also have a bigger impact on heavier grades of crude that are similar to those from Venezuela, such as oil from Mexico, Canada or the Middle East. Venezuela had about 303bn barrels of unextracted reserves at the end of 2017, about 14% more than No 2 Saudi Arabia, according to BP Plc data. Despite the ample resources, Venezuela’s importance to global oil markets has been dwindling as years of under investment have reduced production by around half since 2015 to 1.2mn bpd.
Sources and photo-credits: Bloomberg, Gulf Times