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New Delhi: Indian refiners are likely to import crude oil from Venezuela at a discounted rate after the US eased sanctions on oil from the Latin American country, according to a report by S&P Global Commodity Insights.
"Coker complexes have been operating at full capacity or even overcapacity recently, primarily due to the increased processing of cheap high-sulfur Russian Urals crude. This situation has left limited room for Venezuelan grades," said Sumit Ritolia, refinery economics analyst at S&P Global.
The report said that little change is expected in Venezuelan oil production capacity in the next six months as its state-run oil company PDVSA has “little to no investment capital and much of the oil-related infrastructure is in a poor state of repair". Venezuela’s current capacity lies between 800,000 and 850,000 barrels per day (bpd) with the production sitting around 750,000 bpd.
Earlier this month, the US eased sanctions on Venezuela after its government and opposition agreed to have next year’s election monitored by international observers. The US’ move opens up the possibility for recovery and production growth in the medium to long term, assuming the political agreements are respected, S&P Global Commodity Insights added.
It noted that India used to be a regular buyer of Venezuelan crude oil grades prior to the imposition of US sanctions. During the pre-sanctions period from 2017 to 2019, India imported approximately 300,000 bpd of Venezuelan crude grades, with private refiners being the key buyers. These imports represented around 5-7% of India’s total crude oil imports during that time, S&P Global data showed.
The primary Venezuelan crude grade that India predominantly imported during those years was Merey-16. This grade is ultra-heavy and sour with high acid content and with an average API gravity of around 16. Processing Merey-16 required complex processes and operating conditions due to its challenging nature. Consequently, Venezuelan crudes imported by Indian refiners were offered substantial discounts compared with crudes from other regions, according to S&P Global.
“Indian refiners are likely to consider the Venezuelan market to import discounted barrels. Coker complexes have been operating at full capacity or even overcapacity recently, primarily due to the increased processing of cheap high-sulfur Russian Urals crude. This situation has left limited room for Venezuelan grades," Ritolia said.
If the refining economics would favor Venezuelan crude in the future, Indian refiners may need to displace crude from their existing sources, which might include Middle Eastern, Latin American and US crudes, he added.
According to Ha Nguyen, Executive Director of Global Crude Oil Markets, S&P Global Commodity Insights: “On October 18, the US Department of the Treasury eased oil, trade, and financial sanctions on Venezuela. The ‘general license’ issued by the Treasury permits previously prohibited activities for a six-month period, which could be renewed if the Maduro government follows through on their political and electoral commitments. US oil companies are now allowed to begin to explore and advance investment in Venezuela."
“Of more immediate relevance is US oil refiners will now be able to buy oil directly from PDVSA, Venezuela’s state-owned oil company. This may lead to less Venezuelan crude going to China—where it is used to pay back debt—and more to the US to generate cash. Venezuelan barrels will compete with other Latin American and Canadian heavy oil grades in the US Gulf Coast market."
During January-September, India’s oil demand rose 5.6% on year to 171.34 million tonne, or 4.9 million bpd, according to data from the Petroleum Planning and Analysis Cell. Over the same period, diesel and gasoline demand rose 6.5% and 7.4% on year, respectively. Demand for jet fuel increased 20.5% on the year, while it was up 3.7% year on year for naphtha over January-September.
India has diversified its oil import sources in the past few years and post-February 2022, Russia has emerged as the top seller of crude to India as it supplied oil at discounted prices amid western restrictions. In FY22, Russian oil accounted for only 2% of India’s total oil imports; in FY23, it made up around one-fourth of the 235.52 million tonnes of crude oil imported by India. The other major suppliers to India include Iraq, Saudi Arabia, the US and the UAE.
India may import Venezuelan crude at discounted prices: S&P Global
India used to be a regular buyer of Venezuelan crude oil grades prior to the imposition of US sanctions
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