US may reimpose Venezuela oil sanctions

Spanish Market: Crude oil
29/11/23

The US' lifting of sanctions against Venezuela's oil sector may prove to be rather brief, as Washington is threatening to reimpose some of the economic restrictions it waived barely six weeks ago.

Washington is keeping Caracas to a 30 November deadline to meet political conditions associated with a waiver from US sanctions that have been in effect since 2019. President Joe Biden's administration has demanded the release of three US citizens held in detention in Venezuela and the lifting of restrictions that prevent key opposition leaders from contesting next year's presidential elections.

Venezuelan president Nicolas Maduro so far appears to have shrugged off the US threat. In a speech on 27 November, Maduro made no mention of the US conditions and instead called for the US to lift all sanctions against Venezuela "permanently and definitively, and that we begin a new time, a new era of relations of respect and collaboration, at the highest level, between the US and Venezuela."

Venezuela released five political prisoners soon after the agreement, but no more since then, and the US is particularly keen to force the release of US citizens and permanent residents held in Venezuela. A Venezuelan court on 30 October suspended results of the political opposition's primary, which selected former lawmaker Maria Corina Machado as the main opposition contender for the 2024 presidential election.

The sanctions waiver, issued on 18 October, was meant to last until 18 April 2024, with a promise of extension if the Maduro government made good on its agreement with the opposition to allow a truly competitive presidential and parliamentary elections by the end of 2024.

The White House has already warned US and foreign companies not to get their hopes up about possible return to Venezuela. The sanctions waiver should not be seen as encouragement to resume full operations in that country, US sanctions enforcers said earlier this month, noting that oil companies can choose to have a more limited footprint.

Market impacts

Even in the best-case scenario of continued sanctions relief, Venezuela's near term output was not expected to increase by more than 200,000 b/d, from about 800,000 b/d currently. In practice, foreign producers that already had separate waivers to maintain limited operations in Venezuela, including Chevron, Italy's Eni and Spain's Repsol, would have been best positioned to take advantage of the thaw in US-Venezuela relations.

France-based upstream oil and gas producer Maurel and Prom said earlier this month that it would resume operations in Venezuela following the lifting of US sanctions. Other US and European producers that were not already up and running in Venezuela may be reluctant to make significant investments, given the uncertainty as to whether the sanctions relief will be extended.

Brazil's state-controlled Petrobras said it was weighing investment in Venezuela following the lifting of US sanctions, without announcing specific projects. Bolivia and Venezuela likewise announced unspecified plans for joint refining, oil production and petrochemical projects.

The sanctions waiver also allowed Trinidad and Tobago to proceed with plans to receive natural gas from Venezuela's offshore Dragon field.

Revoked waiver may slow flows, raise rates

Venezuelan crude shipments to Europe picked up since the waiver of US sanctions, as Eni and Repsol appear to be taking more cargoes under existing oil-for-debt swaps. The pace of US-bound shipments has not changed since mid-October.

The reimposition of US sanctions most likely would preserve a previously granted waiver that allowed only Chevron to lift US-bound Venezuelan cargoes, and only those produced from Chevron's joint venture with PdV. US crude imports from Venezuela averaged 120,000 b/d in January-August, according to the US Energy Information Administration.

The latest Venezuelan crude shipments to China have been hauled on the mainstream global very large crude carrier (VLCC) fleet, in a departure from the pre-sanctions waiver practice of using "shadow fleet" vessels. A revocation of the waiver could pressure VLCC rates in the US Gulf coast, Caribbean, Brazil and west Africa.

A possible revocation of the US waiver likely would push up WCS/Castilla differentials for delivered China crude, which have fallen since mid-October because of competition from Merey. Merey differentials could again widen, after narrowing to $11/bl from $20/bl in mid-October (see chart).

By Haik Gugarats, Tray Swanson and Carlos Camacho

Heavy sour crude delivered China ($/bl)

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20/12/24

US House votes to avert government shutdown

Washington, 20 December (Argus) — The US House of Representatives voted overwhelmingly today to extend funding for US federal government agencies and avoid a partial government shutdown. The Republican-controlled House, by a 366-34 vote, approved a measure that would maintain funding for the government at current levels until 14 March, deliver $10bn in agricultural aid and provide $100bn in disaster relief. Its passage was in doubt until voting began in the House at 5pm ET, following a chaotic intervention two days earlier by president-elect Donald Trump and his allies, including Tesla chief executive Elon Musk. The Democratic-led Senate is expected to approve the measure, and President Joe Biden has promised to sign it. Trump and Musk on 18 December derailed a spending deal House speaker Mike Johnson (R-Louisiana) had negotiated with Democratic lawmakers in the House and the Senate. Trump lobbied for a more streamlined version that would have suspended the ceiling on federal debt until 30 January 2027. But that version of the bill failed in the House on Thursday, because of opposition from 38 Republicans who bucked the preference of their party leader. Trump and Musk opposed the bipartisan spending package, contending that it would fund Democratic priorities, such as rebuilding the collapsed Francis Scott Key Bridge in Baltimore, Maryland. But doing away with that bill killed many other initiatives that his party members have advanced, including a provision authorizing year-round 15pc ethanol gasoline (E15) sales. Depending on the timing of the Senate action and the presidential signature, funding for US government agencies could lapse briefly beginning on Saturday. Key US agencies tasked with energy sector regulatory oversight and permitting activities have indicated that a brief shutdown would not significantly interfere with their operations. But the episode previews potential legislative disarray when Republicans take full control of Congress on 3 January and Trump returns to the White House on 20 January. Extending government funding beyond 14 March is likely to feature as an element in the Republicans' attempts to extend corporate tax cuts set to expire at the end of 2025, which is a key priority for Trump. The Republicans will have a 53-47 majority in the Senate next month, but their hold on the House will be even narrower than this year, at 219-215 initially. Trump has picked two House Republican members to serve in his administration, so the House Republican majority could briefly drop to 217-215 just as funding for the government would expire in mid-March. Congress will separately have to tackle the issue of raising the debt limit. Conservative advocacy group Economic Policy Innovation Center projects that US borrowing could reach that limit as early as June. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US government agencies set to shut down

20/12/24

US government agencies set to shut down

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Viewpoint: More changes for Dated crude benchmark ahead

20/12/24

Viewpoint: More changes for Dated crude benchmark ahead

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Trump backs new deal to avoid shutdown: Update

19/12/24

Trump backs new deal to avoid shutdown: Update

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US Congress passes waterways bill

19/12/24

US Congress passes waterways bill

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