U.S. Sanctions Hit Venezuela Hard

U.S. sanctions against Venezuela, announced this Monday as a part of a political pressure campaign exerted on President Nicolás Maduro, have rocked the oil industry which is still struggling to assess the full impact of the measure. Rumors are circulating about PDVSA, the Venezuelan national oil company, courting global trading houses to find avenues that would circumvent the impending sanctions. The U.S. Treasury is reportedly intent on sanctioning all entities that interact with accounts accessible by the government of President Maduro which would significantly complicate matters for PDVSA. 

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Tightening the already tight heavy sour crude market in the United States (and globally, too), the Venezuela sanctions seem to be leading inevitably to some sort of price hike. Oil prices have so far reacted in a modest manner, increasing 2 percent on Tuesday and 1 percent on Wednesday, with Brent Dated reaching the interval of 61.8-62 USD per barrel and WTI trading at 53.8-54 USD per barrel on Wednesday afternoon.

1. U.S. Commercial Stocks Rise Further

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-    U.S. commercial crude stocks have defied the trend of modest declines and soared by 7.9MMbbl during the week ended January 18 to 445 MMbbl. 
-    The week ended January 25 is expected to continue the recent growth trajectory – according to preliminary API data crude stocks have risen by 2.1 MMbbl.
-    The commercial stock build is largely due to a massive (931kbpd) week-on-week drop in exports coupled with a 664kbpd increase in crude imports. 
-    The gasoline buildup continued for the eighth consecutive week with a 4.1 MMbbl hike to 259.6 MMbbl during the week ended January 18, with a further increase expected for the last week on record. 
-    Distillate stocks witnessed a slight drop, falling 0.6 MMbbl to 142.4MMbbl.

2. Libyan Raises its OSPs for February 

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-    Libya has raised most of its official formula prices for cargoes loading in February, most notable Es Sider which was hiked by 25 cents month-on-month to -0.85 USD per barrel. 
-    Es Sider has thus attained the highest premium vs Dated Brent in the past year – last time it was higher, standing at -0.8 USD per barrel, was in February 2018. 
-    Even though the El Sharara field remains shut down following the force majeure NOC declared on December 09, the February OSP of Esharara was hiked by 15 cents to a -0.25 USD per barrel discount to Dated. 
-    The only grades that saw their premiums cut were Libyan sour Al Jurf and Bouri, which were decreased by 20 and 30 U.S. cents per barrel, respectively, to keep them attractive vis-a-vis Med Urals. 

3. Russia Tops China Crude Importers List for 3rd Year in a Row

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-    Russia has topped the list of crude importers to China for the third consecutive year, supplying 71.49 million tons in 2018, an almost 20 percent increase over 2017.
-    Saudi Arabia came in second, exporting 56.73 million tons, amounting to 1.135 million barrels per day.
-    Russia’s lead over Saudi Arabia has doubled in absolute terms from 7.62mtpa in 2017 to 14.76mtpa in 2018, buttressed by increased ESPO term export volumes. 
-    Venezuela seems to be the biggest loser of 2018 in terms of export declines to China, exporting 16.63 million tons, a 24 percent drop over 2017.
-    Despite having received no American crude whatsoever in December, U.S. crude supplies to China have risen 60 percent on an annual basis to 0.248mbpd. 

4. No More Caspian Swaps for Iran

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-    Iranian authorities finally admitted the Caspian swap schemes they have intended to ramp up following their commencement in August 2017 have grounded to a halt. 
-    Initially, Tehran wanted to increase the swap volumes to 300kbpd – Caspian littoral states would bring the oil to the port of Neka, whilst NIOC would provide the same quantity and quality of crude from Kharg Island. 
-    Neka is connected by pipelines to the 250kbpd Tehran and 58kbpd Tabriz refineries, which cover most of northern Iran’s product demand. 
-    Turkmenistan was the most active Caspian state to supply Iran – in H1 2018 it sold on average 8.1kbpd of its crude to Neka (roughly 25-26kt per month), yet by July 2018 the swaps have dried up amid fears of potential U.S. retaliation. 
-    NIOC is trying to revive the swap deals; however, Kazakhstan, Turkmenistan and Russia seem wary of U.S. repercussions after the November 05 tightening of sanctions. 

5. Rosneft Gets Lebanon’s Biggest Port

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-    Russia’s biggest oil company Rosneft has concluded a deal with Lebanon’s Energy Ministry on the operational management of the nation’s largest port in Tripoli. 
-    Explanations for the above vary – however, it can be said that military-related activities (Tripoli is close to the Russian navy base in Tartus) are by no means primordial.
-    Rosneft sees Lebanon as a stepping stone for ramping up its presence in the Middle East, amid substantial investments into the oil and gas infrastructure of Iraqi Kurdistan. 
-    Initially, Tripoli was the endpoint of the Kirkuk export pipeline for some 40 years until 1972 – thereafter political changes in Iraq and the Lebanese Civil War stymied all exports for good.
-    Rosneft will not be taking over the Tripoli refinery, idle since the mid-1990s, seeking first and foremost to exploit Tripoli storage tank farm – allowing the oil major to enter the Lebanese offshore at some point. 

6. Algeria OSP Hikes Saharan Blend Amid Turkish Straits Delays

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-    Sonatrach, the Algerian national oil company, has increased its official selling price for February-loading Saharan blend cargoes by 40 cents per barrel month-on-month. 
-    The price setting is retrospective in nature as all Sonatrach February cargoes have been already sold and trading activity now is focused on March volumes. 
-    Buttressed by lower-than-estimated Libyan production due to the El-Sharara outage and hefty delays in the Turkish Straits (just to pass the Dardanelles takes currently 13-14 days of waiting time), demand for Algerian crude has palpably warmed up.
-    Asia and Oceania amount up to a quarter of Saharan blend demand, with 50 million barrels delivered over the past 12 months. 
-    Currently there are 4 vessels sailing for Asia and Oceania – MT North Sea to Indonesia, MT Jag Lalit to India, MT Pserimos to Australia and MT Minerva Vera to South Korea. 

7. Saudi Aramco Moves into South Korean Refining
 

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-    Further to its aggressive strategy to consolidate Saudi presence in Asia, the national oil company Saudi Aramco has reached a preliminary agreement with South Korean company Hyundai Oilbank to buy a 19.9 percent stake of the refiner.
-    Hyundai Heavy Industries, the parent company of Oilbank, has been a key shipbuilding partner of Saudi Aramco, building a 5.3 billion shipyard at Ras al-Khair on the eastern coast of Saudi Arabia.  
-    The move helps Hyundai financially and allows Saudi Aramco to sell even more crude to South Korea – well above the 0.975mbpd it supplied on average in 2018. 
-    The move is widely seen as a Saudi endeavor to supplant Iranian volumes to South Korea – in fact, Oilbank is one of the three Korean refiners who were granted U.S. waivers to import Iranian crude. 
-    After the share takeover is finalized (there has been no deadline set), Hyundai Oilbank will proceed to its long-planned initial public offering. 
-    Saudi Aramco already owns 63 percent of South Korean refiner S-Oil.