The Trump administration is poised to impose sanctions on US imports of Venezuelan crude oil, a move which will leave US Gulf Coast refiners scrambling for more costly replacement barrels, sources said. If sanctions are imposed, flows of heavy crudes into the US are most likely to increase from Mexico, Canada, Saudi Arabia and Iraq, analysts said this week.
“Essentially, if you have sanctions that don’t allow the current 500,000 b/d of Venezuelan crude to come to the US then you’d have a reallocation of trade flows around the world,” said John Auers, executive vice president of Turner, Mason & Company. “But it’s not going to be a perfect reallocation.” An increase of imports of each grade poses a challenge, from infrastructure constraints to government-imposed output curtailments.
“US refiners would likely pay a premium due to infrastructure constraints, competition for market share in Asia, and continued OPEC supply limits,” analysts with Rapid Energy Group said in a note Friday. The sanctions would also likely be imposed at a time when heavy barrels are trading at a premium to light crudes. Review the recent ups and downs in oil prices and the volatility in gas prices and what they indicate for 2019. Part of the State of the Industry webinar series.
But an exit of Venezuelan crudes from the USGC market would only exacerbate this dynamic, likely raising prices of other similarly heavy grades even further at the expense of Gulf Coast refiners.Gulf Coast coking margins for Venezuela’s Mesa crude have averaged around $5/b so far in January, roughly equal to those for US benchmark medium sour Mars. But these are nearly double those for coking Saudi Arab Heavy or Arab Medium or Mexican Maya.
Sources said that if the heavy market tightens further, refineries — many of which have invested significantly in crackers and cokers — will be faced with the choice of chasing more expensive barrels or switching to a less optimal lighter crude diet.”Complex refiners will buy all the heavy sour because the residue allows them to turn it into the most profitable of products,” said an oil market analyst with a Europe-based refiner, who asked not to be named. “The battle will be between running more light sweet or more medium sour.”