PdV oil wave to Cuba drains ports, restocks island

Venezuela's tidal wave of oil shipments to Cuba since September has met the dual purpose of clearing out an export backlog caused by US sanctions and alleviating the island's severe energy crisis.

Venezuela's state-owned PdV has dramatically expanded crude and refined products supply to Cuba in recent weeks, enabling the company to restore some of the production and blending operations that it had been forced to shut in because it had no where left to store unsold barrels.

The supply surge from Venezuela to Cuba was first reported by Argus in early October. A month later, the result is reflected in higher Venezuelan crude production.

The US-sanctioned Opec country produced around 770,000 b/d in October, up from 650,000 b/d in September, according toArgus estimates. The sharp uptick shows how PdV overcame a narrowing of export options partly by boosting supply into Cuba, Venezuela's closest political ally. PdV has supplied oil to Cuba in exchange for Cuban advisers and experts in a range of fields, from health care to security, under a state-to-state agreement signed in 2000.

The recent Venezuelan oil flows into Cuba have defied US sanctions on an expanding list of tankers and shipping companies aimed at severing the supply chain. Washington blames Havana for propping up Venezuela's president Nicolas Maduro, whom the US and a handful of neighboring countries are seeking to force out of power in favor of opposition leader Juan Guaido. Guaido's team has pressed Washington to take stronger action to stop the trade, but the US administration is taking a more cautious approach to imposing additional sanctions on shipping, after a recent Iran-related sanctions action threw the tanker charter market into turmoil.

Among the Panama-flagged tankers that have been shuttling between the Venezuelan terminals of Jose, Puerto La Cruz, Guaraguao and Amuay and the Cuban ports of Matanzas, Cienfuegos and Felton, are the Panamaxes Sandino and Petion, and the Aframax Giralt. None are on the sanctions roster.

Shipping data shows the cargoes listed as FOB Cubametales, a Cuban state-owned fuel buyer, delivered to Cuvenpetrol, a state-owned refinery operator. Cuvenpetrol had been a joint venture between Cupet and PdV until the Cubans quietly took it over last year.

The cargoes are labeled as Venezuela's heavy sour Merey blend as well as fuel oil, although shipping sources do not discount the potential for misidentification. Tanker signaling in Cuban waters has long been obscured, a practice that is now commonplace in Venezuela as well.

Inside Cuba, fuel and electricity shortages that Cubans had begun to liken to the 1990s "special period" of acute deprivation following the fall of the Soviet Union have begun to ease.

Cuban government officials tell Argus that increased imports from "traditional sources" are closing the supply gap although some refined products are still lacking. This will continue "until supplies are stabilized."

Cupet has raised crude runs at its 65,000 b/d Cienfuegos refinery, and all the plant's production lines are operating, the officials said, without specifying throughput. The refinery processed around 37,000 b/d in 2018, up from 24,000 b/d in 2017, according to official Cuban documents and statements.

The expanded oil supply has also eased blackouts from Cuban power plants.

"The fuel shortage has eased and public transportation has been expanded in the past two weeks," a Caribbean diplomat in Havana said. "Bus and train services are now more frequent than a month ago, and there are shorter lines at many of Havana's gas stations. We are still experiencing blackouts, but these are not as frequent as a month ago."

The Venezuelan supply into Cuba in recent weeks far surpasses Cuban demand that is officially estimated at around 160,000 b/d. Domestic production meets 48pc of Cuba's oil needs, president Miguel Diaz Canel said in September.

The fundamentals suggest that PdV is using Cuban storage tanks to park its oil until markets open up, although it is unclear if the trend will continue. There is no recent evidence that Cuba is reselling Venezuelan oil.

Washington imposed an economic embargo on Havana in 1960, and more recently expanded sanctions as an offshoot of its campaign to oust Maduro. The US levied oil sanctions on Caracas in late January, on top of financial sanctions dating from 2017.