Venezuela Sanctions to Boost VLCCs

Maritime Activity Reports, Inc.

February 3, 2019

Pic: Drewry Shipping Consultants Limited

Pic: Drewry Shipping Consultants Limited

US sanctions on Venezuela are likely to change the pattern of crude tanker trade, with long-haul trade replacing the short-haul trade, said Drewry. While the prospective change in trade pattern will favour VLCCs, it will work against Aframaxes.

The US government has imposed sanctions against Venezuela’s state-owned energy company Petroleos de Venezuela (PDVSA) in order to choke Venezuelan oil revenues and oust Nicolas Maduro, the Venezuelan president.

According to Drewry, the sanctions will effectively bar Venezuela from exporting crude oil to the US until Maduro steps down.

It said that the sanctions will also halt Venezuela’s imports of the diluents (light crude and naphtha) required for blending with the extra-heavy oil from the country’s Orinoco Belt. With the US placing PDVSA on the Treasury Department’s Specially Designated Nationals list, the processing of dollar payments by American financial institutions for Venezuelan crude sales to other countries is also being curbed.

Theoretically, these measures have the potential to halt Venezuela’s crude exports. Even if Venezuela finds alternative sources for diluents and manages to find buyers for its crude, the country’s crude exports to the US will certainly stop as long as the sanctions are in place.

The US is the largest importer of the Venezuelan crude and imported around 500,000 bpd during January-October 2018. In the absence of US purchases, only complex refineries in Asia will be able to process the heavy sour crude from Venezuela. However, Venezuela will have to heavily discount its crude in order to displace the heavy Middle Eastern crude.

From the tanker market’s perspective, the possible increase in long-haul trade will support the overall tonne-mile demand. However, for the individual segments it will be a mixed bag with VLCCs gaining and Aframaxes losing.

"As per our estimates, the potential shift in the crude trade pattern due to sanctions should increase VLCC demand by 24 vessels (annually), but could reduce the demand for Aframaxes by some 15 vessels (annual)," said Drewry.

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