Asphalt buyers are cautiously optimistic about the potential return of Venezuelan crude and asphalt to the market after the US government waived sanctions for six months.
The temporary sanctions relief could pressure US coastal asphalt prices lower as import options and domestic production increase.
Some buyers on the Gulf and Atlantic coasts are "excited" about the possibility of Venezuelan asphalt returning, with some reportedly interested in an early export cargo.
But most market participants are cautious, preferring to take a wait-and-see approach. Not all market participants are eager to assume the risks involved in purchasing Venezuelan asphalt, which might require prepayment or a lengthy demurrage. The possible return of sanctions could also complicate shipments and hamper any imports to the US.
The Atlantic coast market could see the biggest impact from the sanctions waiver, as this region is net short and typically relies on imports to cover demand. From 1993-2002, the US imported a yearly average of 6.3mn bl of asphalt from Venezuela, with around 94pc of this headed to PADD 1, according to US Energy Information Administration data. US imports from Venezuela dropped to an annual average of 3.3mn bl for the next 10 years, before sliding to less than 1mn bl on average from 2013-2022. The US last received Venezuelan asphalt in 2019. Over the same two decades from 1993, waterborne fob New Jersey asphalt prices rose on average by nearly 14pc.
Gulf coast asphalt prices may also feel pressure as Latin American buyers opt for closer Venezuelan supply and demand for US cargoes declines.
Brazil has been heard buying Venezuelan cargoes in recent months. Prior purchases were besieged with issues, according to market participants, but imports could increase now that sanctions have been lifted. Venezuelan asphalt was heard pricing 10-15pc below Brazil's reference prices as of last week.
US Gulf asphalt prices may also come under pressure from increased domestic supply if refiners opt to run more Venezuelan crude, which is a heavy sour grade that favors asphalt production.
Easing sanctions are expected to increase Venezuelan crude production by as much as 200,000 b/d by year-end, and more supply is expected to head to the US.
Global Oil Management Group, run by the Sargeant family, has also asked the US government for permission to import Venezuelan crude for an asphalt unit it plans to commission by mid-2024 at Curacao's idled Isla refinery. This facility could supply Latin America and Atlantic coast markets, further pressuring prices on the US coasts.
Before significant exports of crude could occur, extensive repairs would need to be made to Venezuela's refineries, which have suffered from years of neglect and underinvestment.
"If I was a buyer, I wouldn't put all my eggs in the Venezuelan basket," one market participant said. "There is a whole raft of things that could go wrong."
