Has China just sounded the death knell for Venezuela’s oil industry? – fr

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Has China just sounded the death knell for Venezuela’s oil industry? – fr


China has announced that it will impose taxes on heavy sour crude, a move that could hit Venezuela hard as it continues to fight US sanctions and a dilapidated oil industry. The media suggest that up to 400,000 bpd of Venezuelan oil could be orphaned as new Chinese tax laws prevent the country from exporting its crude to Asia. New regulations set to take effect on June 12 would make profit margins on Venezuelan oil too low to justify its current export route.

Venezuela has not exported oil directly to China since 2019, in large part because of US sanctions that continue to restrict the country’s oil exports. However, China has imported Venezuelan oil through Malaysian refineries, where it is mixed with fuel oil or bitumen before continuing to China. New Chinese rules could add around $ 30 a barrel to this “diluted bitumen”, which makes it economically unviable. Light cycle oil (LCO) and aromatic blends will also be taxed under the new regime.

Chinese customs data suggests that around 380,000 b / d of diluted bitumen entered the country via Malaysia between January and March, much of which came from Venezuela.

If the sanctions do not explicitly prevent non-U.S. Companies from buying Venezuelan oil, this has been strongly discouraged. However, due to increasing demand for oil from China, many of these alternative routes have been largely ignored by the United States.

Chinese Ministry of Finance declared in the context of the introduction of the new tax, “A small number of companies imported record amounts of these fuels and turned them into substandard fuels which were then funneled into illicit distribution channels, threatening gambling. fair market and also causing pollution ”.

New taxes are expected to pave the way for opportunities for Chinese refiners to increase supply and push up prices as the country’s fuel demand continues to rise. It comes like Chinese oil refiners hit higher production levels in April, signaling a sustained resumption of crude oil processing.

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As Venezuela faces huge changes in its export outlook due to Chinese taxes, it looks like the United States will continue to waive sanctions against several international companies based in Venezuela, allowing several companies to continue to exist in the country within certain limits.

Previously authorized waivers should continue for major Chevron oil companies and Schlumberger, Halliburton, Baker Hughes and Weatherford service companies. This will allow companies to preserve their assets as long as they do not perform maintenance activities or pay local employees.

The waivers are expected to be renewed for at least six months in June, after which Chevron could recover Venezuelan oil, as outlined in an early waiver. However, for now, Venezuela does not appear to be a key foreign policy target for Biden, which makes this possible but unlikely.

It appears that Venezuela is trapped in a certain stalemate, unable to make progress with its US allies due to heavy sanctions on its oil sector and unable to export to the main Chinese importer due to heavy taxes. While there is potential for leeway in the coming year, as Biden creates a clearer foreign policy strategy, the future is still unknown for the Latin American oil giant’s untapped potential.

By Felicity Bradstock for Oil Octobers

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