Commodities News

India cuts back on Venezuelan oil amid imminent US sanctions

During January to March, India imported only 100,000 barrels a day of crude oil from Venezuela, accounting for only 2% of the country’s total crude imports, according to data from another intelligence firm Vortexa.

Indian refiners have stopped purchases of Venezuelan crude oil amid the looming US sanctions on the tankers from the south American nation and may not revive the trade with it at least until they see signs of full snapback, according to analysts. However, this is unlikely to impact India’s import of crude oil as the Venezuelan crude output to the world supply had remained limited since it was relieved of the sanctions in December last year.

“Cargo from Venezuela to India takes 25-30 days to deliver so by this point no Indian refiner wants to get stuck with a potentially sanctions-susceptible cargo on their hands just as a potential sanction snapback is looming,” said Viktor Katona, lead crude analyst at data intelligence firm Kpler.

During January to March, India imported only 100,000 barrels a day of crude oil from Venezuela, accounting for only 2% of the country’s total crude imports, according to data from another intelligence firm Vortexa. In March, only 80,000 barrels per day of Venezuelan crude was discharged in India.

“Even the two cargoes in March (Phoenix Vigor, Freud) are surprising but then again, there has been a month-long delay between originally agrees cargoes and actual loading dates because PDVSA (Petroleos de Venezuela) has ran low on diluents in Jan-Feb, so maybe these are just February cargoes delayed into March,” Katona said.

Meanwhile, India imported 1.8 million barrels per day of crude oil from Russia in March, up 16% from February, as per data from Kpler, the same level as a year ago. Russia has emerged as the top supplier of crude to the country post the outbreak of Russia-Ukraine conflict on the back of healthy discounts Russia offered in its Urals. Iraq and Saudi Arabia are the other top exporters of crude oil to India.

Besides India, Venezuelan crude supplies are limited and contended among buyers from the US, Europe and China. “If US sanctions are re-imposed, India will have ample options to replace the lost Venezuelan barrels,” said Serena Huang, analyst at Vortexa.

The limited crude oil supplies from Venezuela again does not pose any serious impact on India’s crude imports but a re-direction of Venezuelan crude exports back to China, Huang noted.

Provisional data from S&P Global commodities at sea puts Venezuelan volumes at 0.18 million barrels per day this month against 1.8 million bpd from Russia. “Venezuelan volumes aren’t significant enough currently for Indian refiners to face challenges finding alternatives for,” said Pulkit Agarwal, Head of India Content (cross commodities) at S&P Global Commodity Insights.

As far as Indian refiners are concerned, they might have to turn back to Russian crude for the time being which is a bit expensive compared to the Venezuelan flagship grade Merey. According to data provided by Kpler, Venezuela’s Merey trades at an approximately $8 per barrel discount to Brent when delivered, which is cheaper than Russian Urals at a discount of $3-$4 per barrel.

The reason for Venezuelan crude coming at a cheaper rate comes from the fact that it is much heavier and is more sulphurous, making it more viscous. Indian refiners have so far been successful in breaking it down into high-value transportation fuels which is also a reason for India being a traditional buyer of Venezuelan oil.

While the country’s oil imports seem fairly at a comfortable position, the oil producing majors might have to face the brunt of newly imposed sanctions, shattering their hopes to take crude cargoes in order to liquidate their pending dividends in the country.

ONGC Videsh (OVL) MD Rajarshi Gupta last month on the sidelines of the India Energy Week had said that the company is awaiting cargoes in lieu of stuck dividends. The MD had also said that OVL is in discussion to obtain operatorship of two oil and gas projects in Venezuela.

“I think they (Indian oil producing companies) will stop until they see the next move from the Biden administration. If the White House extends the waiver for another 6 months (which we at Kpler believe they will do), then India will start buying again,” Katona said.

While India remains immune of US sanctions on Venezuela, it may cause an upside risk to the global crude oil prices.

“When the US introduced the 6-month waiver on Venezuela sanctions mid-October last year, Brent stood at $91 per barrel. Within one month, it traded at $80 per barrel…curbed heavy sour supply from Venezuela has the potential to lift prices by $2-3 per barrel very quickly, especially considering how robust have Indian and Chinese purchases been,” Katona said.

Crude oil prices have again started rising and touched $86.50 on Tuesday. If prices begin to increase at all, it could impact the marketing margins of the country’s oil marketing companies which are already under pressure after the announcement of the auto fuel price cut.

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