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US sanctions on Venezuela will be weaker than expected

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Oilfield Technology,

Rystad Energy analyst Paola Rodriguez-Masiu comments on the sanctions announced by the US against Venezuelan state oil company PDVSA:

“The sanctions will deal a meaningful blow to the Maduro administration’s cashflow, but the effects will not be as harsh as the United States expects. Administration officials reportedly said the sanctions would result in more than US$11 billion in export losses for Venezuela over the next year, but I believe this figure will be substantially lower.”

Rodriguez-Masiu, a native Venezuelan who coordinates Rystad Energy’s global refinery and infrastructure data, added:

“The oil that Venezuela currently exports to the US will be diverted to other countries and sold at lower prices. For countries like China and India, yesterday’s news was akin to Black Monday. They will be able to pick up these oil volumes at great discounts.”

Few countries have refining capacity that can handle the heavy crude oil quality coming out of Venezuela. The country currently exports around 1.2 million bpd, of which approximately 450 000 bpd go to the US, while 300 000 go to India and 240 000 to China.

Many refineries along America’s Gulf coast import Venezuelan heavy crude to mix with lighter oil coming out of shale basins such as the Permian in west Texas. With sanctions in place, those refineries will have to turn to other sources for heavy crude.

“The sanctions will affect refinery margins in the US. Now they will have to import heavy crude from the Middle East at a premium. US refiners will be amongst the biggest losers, as we have noted earlier,” Rodriguez-Masiu remarked.

The oil market largely shrugged off news of the sanctions. “The market has priced in the Venezuelan crisis. Plus, the export volumes will not be eliminated from the market, but rather rerouted to other countries,” according to the Rystad Energy analyst.

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