U.S. Refining Companies Taking Venezuelan Crude

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land Texas)

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Summary

U.S. refiners are said to be taking on Venezuelan crude oil. Federal U.S. data, however, show barrels are coming into the domestic refining sector at a trickle.

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Gulf Refiners are Early Entrants

Amid reports of sales of Venezuelan crude oil to U.S. Gulf Coast refineries, federal data show imports of the heavy crude oil remain well below-year ago levels.

Citing an exclusive, the Reuters news service on Friday reported that both Valero (San Antonio, Texas) and Phillips 66 (Houston, Texas) moved through trading house Vitol (Rotterdam, Netherlands) to purchase cargoes of crude oil sourced from Venezuela. The arrangement, the news service said, was made as a result of an agreement between the U.S. and Venezuelan government that was brokered after U.S. military forces arrested Venezuelan President Nicolas Maduro on drug charges at his estate in Caracas.

Few specifics were available on the deal. U.S. President Donald Trump's administration, however, said his government now controls a country hosting the richest oil deposits in the world. The U.S. Department of Energy added that all proceeds from the sale of Venezuelan crude oil and refined petroleum products would be disbursed for the "benefit of the American people and the Venezuelan people at the discretion of the U.S. government." According to Reuters, U.S. Energy Secretary Chris Wright said sales were targeting a goal of $500 million, with the oil sold at a $15-per-barrel discount to Brent, the global benchmark for the price of oil. Brent crude oil on Friday was trading near $66 per barrel.

Refineries in Venezuela, meanwhile, appear operational, with IIR Energy issuing few alerts since Maduro's capture. The nation, however, requires a substantial inflow of diluting agents, along with special refining units, to process its oil.

Venezuelan crude oil, meanwhile, is a match for a U.S. refining sector that's designed to process heavier oils, which are cheap but complex to refine. Canada, with its vast deposits of the viscous bitumen in Alberta, is the top deliverer of crude oil to the U.S. economy, accounting for about 60% of the foreign oil.

Over the four-week period ending January 16, U.S. federal data show imports of 3.9 million barrels per day (BBL/d) of Canadian crude oil. That compares with 97,000 BBL/d from Venezuela. The country delivered 315,000 BBL/d on average during the same period last year.

So far, not much has changed, given the billions of dollars and decades of involvement needed to overhaul a Venezuelan oil sector hampered by a lack of funds and sanctions. In terms of availability, it's unclear what the country has in storage and what's readily available for export.

U.S. oil companies, including long-term Venezuelan player Chevron Corporation (Houston, Texas), could find opportunities to revive the industry and gain access to the Orinoco Belt, the largest oil reserve in the world.

But Jesus Davis, a vice president for energy services at Industrial Info, said it would cost tens of billions of dollars in spending to revamp Venezuela. Chevron would need its $18 billion outlined in spending for its entire portfolio this year to do heavy lifting there.

Industrial Info's Global Market Intelligence (GMI) is tracking Venezuelan oil and gas facilities, petroleum refining facilities, and other petroleum investments reaching a total of only $207.5 million.

Venezuelan Barrels Could Upset the Apple Cart

Elsewhere, U.S. claims of control over Venezuela's resources could upend global flows given the country's legacy reliance on U.S. adversaries such as China and Cuba. Canada, meanwhile, is working to halve the amount of U.S. trade given the collapse of the historic friendship between the two nations. Canada is backing a new export pipeline to deliver its crude oil outside of North America.

Meanwhile, Mexico could face problems should Venezuelan barrels eat into its U.S. market share. Mexico is the No. 2 supplier to the U.S. market, behind Canada. Over the four-week period to January 16, Mexico averaged 251,000 BBL/d in exports, according to U.S. federal data.

A lack of international players, however, is complicating Mexico's oil production. State-backed Petroleos Mexicanos (Mexico City), better known as Pemex, realized 1.61 million BBL/d from January to October last year. President Claudia Sheinbaum is hoping to bring that to 1.8 million BBL/d before her term ends in 2030, far below the average of 3.4 million BBL/d in 2004.

By the Numbers

• 3.9 million BBL/d taken from Canada
• 97,000 BBL/d from Venezuela
• $15 discount to Brent for Venezuelan crude oil

Key Takeaways

• Phillips 66, Valero said to be taking in Venezuelan crude
• Mexico could see threats to its market share
• Investments could be problematic for Venezuelan revival

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).