The latest price data shows oil traders are rushing to buy Venezuelan crude as the discount has narrowed. This has been possible since the Biden administration presented on October 18th crucial exceptions to the broad economic sanctions targeting the South American country. New licenses on November 16th It also reinforced expectations of an opening, despite the stalemate on the political front.
Starting November 17th, Merey crude oil from Venezuela sold at $65 per barrel for shipments to the Mediterranean and $64 for shipments to Asia. That would mean a discount of between 16 and 17 dollars on the date, compared to the reference Brent crude oil. Before general licenses, the discount was around $35, all according to live data from Venergy Group, a local trading company. This would mean that the discount has been reduced from around 30% to 13%; and although global oil prices have fallen in the last month, Merey crude is selling for about 30% more than before.
“Before sanctions, the usual discount would be $7 to Brent,” says Reinaldo Quintero, president of Argos Energy Services and the PETROPYMI business association. In October he rightly highlighted the capacity of Maurel & Prom, which has now announced plans to increase production to 50,000 barrels per day. “There is a lot of movement here in Caracas. The hotels are full of merchants who have arrived by plane, from Europe, from India, from North America.”
Indian buyers are especially relevant in this case. They are bothered by the Trump administration’s 2020 policy of attacking third parties that trade with Venezuela. Sanctions on Iran and their enforcement are also likely to be tightened given the renewed conflict in the Middle East. And Russian crude is no longer so cheap: almost no Russian oil is sold below the limit of $60 per barrel, according to the Financial Times. In fact, the Ural mix was trading at an average of just over $80 in October.
November 16thOFAC also announced additional licenses that complement those announced on October 18th. The 8M License “gives explicit permission to operate to companies that support Chevron’s business.”
operations,” says Quintero. they are halliburton
and Weatherford International.
The 45A license will explicitly allow more transactions related to the state airline Conviasa, which is being used to repatriate Venezuelan citizens. With the two additional measures, the Biden administration reiterates where two of its priorities lie: oil and gas businesses and the migration curve.
Skeptics of Biden’s policy point to the lack of progress since the October 18 announcements.th. Capitol Hill sources maintain that President Nicolás Maduro needs to show more “good will” toward the United States before November 30.th. For example, it is not yet clear what will happen to US citizens detained in Venezuela or opposition candidates who will not be allowed to run for public office.
However, we have been in similar situations before. Negotiations between Washington DC and Caracas are currently taking place in secret and are often accompanied by tough talks on both sides. The October 18 announcement.th It took many experts by surprise.
The Venezuelan financial sector is preparing for some form of reopening. On October 23third, we saw the first debt issuance on the Caracas stock exchange by an oil company. Troil Services, which works with Chevron in the Orinoco Oil Belt, issued debt securities worth USD 62,500. Brokerage firm Kairos Valores Casa de Bolsa said this was part of a broader program to issue USD 600,000, maturing in one year. “In the past, there were some national energy companies in the stock market, like Suelo Petrol, but that hasn’t happened in the last 20 years,” says Eleazar Jiménez, an executive at a brokerage house.
If the current licenses are expanded and other restrictions are also removed, we could expect the discount to get even closer. This presents PDVSA with an immediate windfall, even before it can increase production. It is worth noting that the United States effectively prohibits the company, along with the Venezuelan state, from issuing new debt, meaning they can only use their own income to make investments.
The next logical step should be related to easing debt restrictions. It will be essential for Venezuela to emerge from the crisis and enter a sustainable recovery. Already on October 18th, the Biden administration eliminated the ban on US citizens purchasing bonds from the Venezuelan State and PDVSA. Whoever sits in the presidential palace of Miraflores will eventually have to negotiate with existing creditors and access multilateral lenders and other investors.