Venezuela redirects oil to US, cutting exports to China

Venezuelahas agreed on up to $2 billion in oil supplies to the United States, which effectively reduces exports to China. The deal could change the balance of the global oil market, strengthen Chevron's position and affect fuel prices in the United States.

Venezuela is entering a new stage in energy relations with the United States. The agreement between Caracas and Washington provides for the supply of tens of millions of barrels of oil to the American market, which can redistribute global flows of raw materials and reduce the country’s dependence on the Chinese direction.

Venezuela and the United States: terms of the oil deal

An agreement on the supply of Venezuelan oil to the United States worth up to $2 billion was confirmed by US President Donald Trump, writes xrust. According to him, the agreement will make it possible to quickly redirect raw materials previously intended for China and avoid additional production cuts in Venezuela.

• volume — from 30 to 50 million barrels;
• price — based on market quotes;
• logistics — direct deliveries to American ports;
• coordination — under the control of the US Department of Energy.

Exclusive detail: according to Energy Aspects industry analyst Carlos Torres, “this scheme allows the United States to quickly obtain heavy oil without revising the sanctions regime, using existing licenses.”

Venezuela under sanctions: political and economic context

The decision was Caracas’ reaction to pressure from the Trump administration, which had previously demanded that the oil sector be opened to American companies. The US President has publicly called for «full access» to the Venezuelan oil industry.

Venezuela currently has millions of barrels of oil in storage and on tankers, but cannot export it freely due to restrictions imposed by Washington in December.

• PDVSA's financial accounts are frozen;
• transactions in dollars are prohibited;
• access to global capital markets is limited.

Venezuela and Chevron's role in oil exports

Key Chevron, PDVSA’s main partner in joint projects, remains the supply operator. It was she who continued uninterrupted loading of oil in recent weeks, exporting from 100 to 150 thousand barrels per day to the United States.

According to Reuters (primary source), the oil will be taken directly from ships and sent to American ports. Control over the implementation of the deal has been entrusted to US Energy Secretary Chris Wright.
Source: Reuters — official comments from the negotiators.

Venezuela and the redistribution of flows from China

Before the imposition of sanctions, China remained the largest buyer of Venezuelan oil for more than a decade. Now, some of the cargo destined for the Asian market may be redirected to the United States.

An oil industry source noted:

«Trump is interested in a quick result to present the agreement as a political and economic victory.»

Representatives of the Venezuelan government and PDVSA have not officially commented provided.

Venezuela, oil prices and market reaction

The market reacted quickly: oil prices in the US fell by more than 1.5%. Traders expect an increase in the supply of heavy grades in the Gulf of Mexico.

• heavy oil differentials have decreased by ~$0.50 per barrel;
• American refineries are ready to process Venezuelan raw materials;
• potential imports — up to 500 thousand barrels per day.

US Secretary of the Interior Doug Burgum, in an interview with Fox News, called the increase in supplies “great news” for the labor market, gasoline prices and the Venezuelan economy.

Venezuela: background and possible scenarios

The flagship Merey crude oil is sold at a discount of about $22 to Brent, which estimates the transaction volume at approximately $1.9 billion. However, it remains unclear whether PDVSA will receive direct access to revenue.

The negotiations also include:

• auction sales mechanisms;
• expanding licenses for PDVSA partners;
• possible use of oil for the US strategic reserve.

According to Reuters, a number of companies — including Eni, Repsol and CNPC — have already begun preparations to resume receiving Venezuelan cargo.

Xrust Venezuela is redirecting oil to the United States, reducing exports to China