Although sanctions against Venezuelan crude are yet to come into effect, the country’s oil has essentially already been taken off the mainstream international market after the US State Department piled direct pressure on foreign companies to scrap all oil-related deals.
European refiners have scrambled to switch to expensive Russian sour crude after US sanctions hit Venezuela’s similar-grade exports, Reuters cited trading sources as saying.
The sources said that even though US crude output is increasing and exports are due to soar later this year, it is not an alternative because American crude is overwhelmingly light and sweet, and European refineries are equipped to process heavier grades to make refined products.
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As a result, the refineries are already competing to secure as much sour Russian Urals crude as they can, in a complete reversal of the traditional differential between light and heavy oil to the levels which have not been in place since 2013.
“Urals is anchored in a positive zone versus dated Brent [light crude] and there is no indication it will fall to a discount any time soon,” a trading source at a European oil major noted.
It was echoed by another source underscoring that “all refiners are looking for Urals or a Urals replacement” and that “we see that it won’t be enough for everyone”.
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The developments come after Washington slapped sanctions on Venezuela’s PDVSA state oil company, blocking $7 billion of the company’s assets and pressuring businesses to cut ties with the firm by the 11 March deadline. The deadline, however, was then extended until 10 May.
Due to US-imposed sanctions, Venezuela’s overall exports of crude oil reportedly dropped to 920,000 barrels per day (bpd) in the first month of sanctions, roughly 30 per cent less than the 1.5 million bpd traded in the prior three months.
Venezuelan President Nicolas Maduro, for his part, claimed that the US wants “to unleash an ‘oil war’ to invade our homeland and rule here”, adding that these attempts are bound to fail.
READ MORE: US Asks EU to Build Up Pressure on Venezuela’s Maduro With More Sanctions
All this comes against the background of the political standoff in Venezuela which escalated on 23 January, when opposition leader Juan Guaido declared himself the country’s “interim president”. Maduro slammed Guaido’s move as an attempt to stage a coup orchestrated by Washington.
The US immediately recognised Guaido, with about 50 other countries following suit. Russia, China, Cuba, Bolivia and a number of other states have, in turn, signalled their support for Maduro’s legitimate government.