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Venezuela turns to India as US ban bites

Minister seeks to double exports to second-largest cash market

  • Business Day
  • 14 Feb 2019
  • Collin Eaton, Marianna Parraga and Gleb Gorodyankin Houston/Mexico City/Moscow
Needs help: Venezuela’s oil minister Manuel Quevedo, centre, at the Petrotech conference in Greater Noida, India on Monday.

Venezuelan oil company PDVSA is looking to double exports to India as US sanctions hobble deliveries to the US and Europe.

Venezuelan oil company PDVSA is looking to double exports to India as US sanctions hobble deliveries to the US and Europe.

The US and most Western countries have recognised opposition leader Juan Guaido as Venezuela’s head of state, but President Nicolas Maduro retains the backing of Russia and China and control of state institutions including the military.

Oil exports since the sanctions took effect on January 28 have fallen to 1.15-million barrels per day (bpd) of crude and refined products, Refinitiv Eikon data showed, down from about 1.4-million bpd.

In response, Venezuela is turning its focus to buyers paying in cash, especially in India, its second-largest customer after the US.

Before the sanctions, PDVSA shipped more than 500,000 bpd to the US, its largest cash market, followed by India, at 300,000 bpd and then China.

Venezuela has sent its oil minister, Manuel Quevedo, to India to convince refiners, including Reliance Industries and Nayara Energy, to double their oil purchases.

“We are selling more than 300,000 bpd to Indian buyers,” Quevedo said on Monday in New Delhi. “We want to double that amount.”

Venezuela is open to barter arrangements with India using oil as payment, he said, but did not elaborate.

Two supertankers, Baghdad and Folegandros I, left from Venezuela’s Jose terminal late on Monday carrying cargoes destined for Indian ports.

Refinitiv Eikon ship tracking data showed several other tankers carrying Venezuelan crude or fuel towards Asia. Finding buyers in Asia may be difficult, however, analysts said, as Washington uses its political and financial clout to pressure countries to stay clear of dealing with PDVSA.

It remains unclear how cash sales would be effected without using the US or European banking systems after April 28, a deadline set by the US treasury.

Barclays addressed the issue in a special report on Tuesday.

“Considering all the difficulties that Venezuela faces in delivering oil to other markets and the legal, reputational and financial risks confronting traders or counterparties that do business with it under the current conditions, it seems unlikely that all production can, in short order, go to other markets,” the bank wrote.

The US sanctions are designed to undercut financial support for Maduro, cutting his access to the oil revenue that has helped his government remain in power.

US bank Goldman Sachs said in a note on Wednesday that because of the sanctions there was “limited ability for non-US refiners to take on Venezuela’s very heavy crude” beyond India and China.

India’s Reliance is among PDVSA’s main cash customers, while Nayara receives Venezuelan oil via its stakeholder, Russia’s Rosneft.

Rosneft provided PDVSA with around $6.5bn in loans from 2014 to 2017, to be repaid in oil and oil product supplies.

PDVSA’s debt to Rosneft stood at $2.3bn at the end of 2018, Rosneft said last week.

It was supplying Rosneft with an average of 137,000 bpd of heavy crude and refined products before the latest sanctions, PDVSA trade data seen by Reuters showed.

Under its prepayment deal with Rosneft, PDVSA delivers about half that crude to Nayara, which controls Vadinar, India’s second largest refinery, and sends the rest to Europe, including to Rosneft refining assets in Germany.

The last cargo containing fuel oil for Rosneft left Venezuela for Asia on January 30-31, containing around 1-million barrels, according to a trading source close to PDVSA and Rosneft.

“PDVSA supplies to Rosneft or its subsidiaries in India under deals clinched before the sanctions are not falling under the sanctions,” said Natalia Abtseshko, head of the international projects group at Moscow law firm Vegas Lex.

Nayara received 69,200 bpd of Venezuelan crude in 2018, down from 87,700 bpd in 2017, Refinitiv Eikon data showed.

When cargoes started to arrive irregularly in 2018, Rosneft CEO Igor Sechin flew to Caracas to complain to Maduro, Reuters sources have said.

PDVSA and Rosneft did not respond to Reuters requests for comment.

A representative of the US Office of Foreign Assets Control (OFAC), part of the treasury department, declined to comment whether Rosneft would be able to continue to receive PDVSA oil under their oil-forpayment deal.

About 9-million barrels were stuck in tankers, waiting for payment or discharge instructions last week, Refinitiv Eikon data showed.

Most are anchored off the US Gulf Coast as Venezuelan opposition leader and selfproclaimed president Juan Guaido moves to set up escrow accounts to receive proceeds.

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