Venezuela courts former oil clients after lifting sanctions

The Venezuelan state PDVSA has begun contacting clients with crude oil supply contracts amid the temporary lifting of sanctions USA to the oil industry, two sources said, seeking to expand its cash sales to global refiners.

The United States on Wednesday lifted most of the restrictions imposed on Venezuela to produce, sell and export oil to its chosen markets for the next six months. The broad easing of sanctions, imposed since 2019, will allow some Venezuelan crude to flow to customers with whom they were previously prohibited from conducting transactions.

The US decision, made to encourage a fair presidential election in Venezuela next year, is not expected to significantly boost Venezuela’s deteriorating oil production or immediately lead to increased exports, according to experts.

PDVSA’s commerce and supply division has lost a large part of its qualified, low-paid personnel. That loss of experience means new negotiations could take time or produce few new export deals in the six months of the licence.

Venezuela’s oil production now averages 780,000 barrels per day (bpd) and the licensing changes could help boost PDVSA’s cash flow by at least reducing the pool of middlemen who sell its oil at a discount to customers mostly in Asia. .

Venezuela can now receive direct payments for goods or services under the license issued Wednesday by the Treasury’s Office of Foreign Assets Control (OFAC), which oversees US sanctions. All sanctions against PDVSA were not withdrawn.

The payment restrictions have reduced sales revenue for PDVSA and its joint ventures, which were only authorized to deliver cargoes to pay debts, while the movement of cash to Venezuela was prohibited.

PDVSA’s profits have been severely constrained by sanctions over the past four years. Its traditional customers were prohibited from doing business with the state-owned company, forcing the company to sell its oil to an ever-changing group of middlemen who offer cargoes at deeply discounted prices.

Since November, when Washington authorized Chevron Corp to expand its joint ventures with PDVSA and export Venezuelan crude to the United States, that deal and a few others have provided PDVSA’s only access to Western markets.

But even those agreements are limited to debt payment agreements, so little cash reaches PDVSA’s coffers, limiting its ability to expand oil production and exports.

“The greatest short-term benefit, in an election year, is to sell oil at full price to its most profitable market, the United States”Francisco Monaldi, an expert in Latin American energy markets at the Baker Institute at Rice University, said on social media.

From China to Europe

A delegation led by Maduro traveled to China in September to renew investments and the trade relationship.

Among the proposals discussed by both the governments and their state-owned companies was the reactivation of Venezuelan oil debt payments to China, which largely remain under a grace period, and the expansion of mixed oil companies in the country, according to sources close to the conversations.

China is the main destination for Venezuelan oil, receiving some 430,000 bpd of crude oil and fuels this year, according to ship tracking data. Before the sanctions, India and the United States were other main destinations.

PDVSA’s biggest clients, state-owned CNPC and PetroChina through extensive oil-for-debt deals, have not imported Venezuelan oil since the United States imposed secondary sanctions on the South American country in 2020, so small independent refiners in the Asian nation have been taking Venezuelan shipments instead.

Before the sanctions, PDVSA also had crude oil supply contracts with US refiners, including Citgo Petroleum, Valero Energy and PBF Energy; Reliance Industries and Nayara Energy of India; and European firms such as the Italian Eni and the Spanish Repsol.

It was not immediately clear which of those supply contracts remain in force and whether they could be quickly renewed.

PDVSA and Venezuela’s Oil Ministry did not immediately respond to requests for comment.

Source: Reuters.