Venezuelan crude oil banned from entering the US has been unable to make its way to Asia despite favorable arbitrage economics, largely due to financial issues arising from the nature of the import ban. “Not much in the way of flows from Venezuela at the moment,” a trader with a Chinese oil trading company based in Singapore said on Thursday. “Didn’t hear any Venezuelan crude come to Asia,” sell-side a source said.
Market watchers in Asia had initially expected Venezuelan crude to be diverted readily from the US to Asian markets due to quality and arbitrage opportunities. Crude traders had expected that with the ongoing supply tightness for medium and heavy sour crude grades in the Asian markets, buyers would welcome alternative supplies of similar quality crude. But the trade finance arms of most financial institutions are hesitant to provide letters of credit or other forms of credit lines to those purchasing Venezuelan crude outside of the US because of uncertainty surrounding payment clearance, traders said.
The new sanctions require any payment for crude from PDVSA to be deposited into blocked accounts within the US, effectively making the US-centric ban a case of “financial sanctions” applicable globally, as one Singapore-based crude trader put it. A large chunk of Venezuelan crude production is comparable in quality to the Middle East sour crudes that comprise the majority of refinery feedstock in Asia. On paper, arbitrage economics currently point to an inflow of competitive crude grades toward the East, with the Brent/Dubai EFS narrowing to sub-$1/b levels since end-January. A narrower Brent/Dubai spread indicates that Brent-linked crude prices — such as those for Venezuelan crude grades — look relatively more attractive to buyers compared to Dubai-linked ones.