U.S. Ban May Offer China and India Feast of Cheap Venezuelan oil

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A possible move by Donald Trump to hurt Venezuela’s oil industry could prove a shot in the arm for the Xi Jinping and Narendra Modi administrations.

If the U.S. decides to deploy a slate of sanctions that it’s said to have drafted against the Latin American nation, American refiners — the No. 1 consumer of Venezuelan crude exports — would be forced to cease purchases. That may mean more supply becomes available for the OPEC producer’s other big customers: China and India.

The opportunity to soak up the extra supplies from Venezuela at potentially cheap prices would be a boon for the Asian countries, where the governments are trying to support slowing economic growth. In China, Xi’s administration is trying to implement stimulus measures to shield the public from the effects of its ongoing trade war with the U.S. Meanwhile, Modi’s party is being weighed down by populist pressures before national elections due by May.

Meanwhile, Venezuela will likely be eager to hold on to them as customers, especially after years of economic turmoil has battered the nation’s production and left it with few other buyers in the growing Asian oil market. Other major crude buyers such as South Korea and Japan have largely stopped purchases from the Latin American country, and even China and India have reduced imports.

The quality of Venezuelan oil has been deteriorating after years of under-investment and aging infrastructure,” said Virendra Chauhan, an analyst at industry consultant Energy Aspects Ltd. “That’s making the country’s crude more difficult for refineries to run, reducing its customer pool. This means it’ll be tough for Venezuela to sell more oil to new markets and customers outside of traditionally active buyers in China and India.”

China imported about 340,000 bpd of crude from Venezuela in the first 11 months of 2018, accounting for 3.7% of total shipments from overseas, government data show. The Asian nation had bought about 437,000 bpd, or about 5.2% of its foreign oil, from the Latin American country in 2017.

Venezuela was the fourth-biggest crude supplier to India — after Iraq, Saudi Arabia and Iran — in 2018, when it received about 330,000 bpd, 13.6% lower than a year earlier, according to the Directorate General of Commercial Intelligence and Statistics, an arm of the ministry of commerce and industries. The supplies accounted for about 8% of total imports. Reliance Industries Ltd. and Nayara Energy Ltd. are the country’s only buyers of Venezuelan cargoes.