U.S. Sanctions Venezuela, Potentially Blocking Oil Imports

The Trump administration said Jan. 28 it would sanction Petróleos de Venezuela SA (PDVSA; Caracas), Venezuela’s state-owned oil and natural gas company, a move that could suspend about 500,000 bbld of the country’s crude exports to U.S. Gulf Coast refineries and shut down U.S. exports of diluents to the South American nation, reports S&P Global Platts.

U.S. Treasury Secretary Steven Mnuchin down-played the impact of the sanctions on the oil market, maintaining they were unlikely to have any impact on domestic fuel prices. He said that Venezuelan oil comprises a “rather moderate portion” of U.S. supply and that refiners have largely reduced their imports of Venezuelan crude as sanctions loomed. “We’re very comfortable that [U.S. refiners] have enough supply that we don’t expect any big impact in the short term,” Mnchin said during a White House briefing Jan. 28, 2019.

Under the sanctions, payments for U.S. imports of Venezuelan crude will have to be placed into blocked accounts in the U.S., Mnuchin explained. PDVSA-owned Citgo (Houston) assets in the U.S., including refineries in Louisiana, Texas, and Illinois, will be allowed to continue to operate, although revenues also will be required to be held in blocked accounts, he added. The sanctions are aimed at keeping oil revenues from the regime of Venezuelan President Nicolas Maduro, Mnuchin said.

“Today’s designation of PDVSA will help prevent further diverting of Venezuela’s assets by Maduro and preserve these assets for the people of Venezuela,” he said in a statement. “The path to sanctions relief for PDVSA is through the expeditious transfer of control to the interim president or a subsequent, democratically elected government.”

By sanctioning PDVSA, the U.S. will “prevent the illegitimate former Maduro regime from further plunder- ing Venezuela’s assets and natural resources,” Secretary of State Mike Pompeo said. The Trump administration has officially recognized Venezuelan opposition leader Juan Guaido as the legitimate president of Venezuela.

Contacted by S&P Global Platts, Joe McMo- nigle, an analyst with Hedgeye Risk Management, called the sanctions a “de facto oil ban to the U.S.” He said he expected additional steps, including broader, global sanctions, to be announced in coming days. “I think the administration is doing oil sanctions reluctantly and is well aware of the impact to U.S. refiners and potentially gaso- line prices, but feel it is a necessary step to implement their policy to choke off cash from Maduro.”

Earlier, analysts said that if sanctions on Venezu- elan oil were imposed, flows of heavy crudes into the U.S. are most likely to increase from Mexico, Canada, Saudi Arabia, and Iraq to replace those lost barrels from Venezu- ela. Mnuchin said Middle East producers would be happy to fill any potential supply gap the PDVSA sanctions caused.

U.S. imports of Venezuelan crude averaged about 574,000 bbld in December, down roughly 40% from July 2016, when U.S. refiners imported more than 850,700 bbld, according to U.S. Customs and Border Protection data cited by S&P Global Platts. U.S. imports of Ven- ezuelan crude fell to as low as 409,150 bbld in February 2018, the data shows. Venezuelan oil output fell to 1.17 MMbbld in December, according to the latest S&P Global Platts survey. The country’s production is forecast to decline by 350,000 bbld through 2019 but, depending on sanctions and other risk factors, could fall by as much as 800,000 bbld this year, analysts observe.