By Sambit Mohanty – Indian refiners have started to snap up crude shipments from Venezuela barely weeks after the easing of sanctions, opening up a new battleground for Chinese independent refiners who have been the most active buyers of the feedstock from the South American supplier in recent years.
Register Now “Some Venezuelan crude is now getting loaded and is on its way to India. With Venezuelan crude entering the market, it provides an opportunity for Indian refiners to seize the moment and enhance their sour crude refining margins, thereby boosting overall gross refining margins,” said Sumit Ritolia, refinery economics analyst at S&P Global Commodity Insights.
Shipping fixtures showed that India had returned to the market for November and December loading cargoes for Venezuelan crude after a three-year suspension since September 2020. Kpler data showed that about 20,000 mt of Venezuelan crude would be loaded in November to head to India, while the volume would jump to 390,000 mt in December. These cargoes would arrive in Sikka and Mangalore.
India is not new to Venezuelan crude. It was an active buyer of Venezuelan crude before the sanctions but had ceased purchases after Washington slapped sanctions on Venezuela. However, China’s independent refiners have continued to buy those crudes even during the sanctions era.
In late October, the US Department of the Treasury eased oil, trade and financial sanctions on Venezuela for a six-month period, which could be renewed if the Nicolás Maduro government follows through on its political and electoral commitments.
This meant that US oil companies would now be allowed to begin to explore and advance investments in Venezuela. Of more immediate relevance is that US oil refiners will now be able to buy oil directly from state-run PDVSA. Analysts said that this may lead to less Venezuelan crude going to Asia amid growing competition for those crudes from other regions.
Pre-sanctions era
Prior to the initial Venezuelan sanctions, US refiners purchased about 44% of Venezuelan crude exports. That number declined from 2017 until 2020, when the US received no Venezuelan crude as the sanctions took effect. Much of this heavy, sour crude was replaced by heavy Canadian barrels or imports from other Latin American countries.
During the period when the sanctions on Venezuela were in place, China’s independent refineries shipped in the bulk of the volumes. For instance, for the month before the lifting of the sanctions, about 360,000 b/d of crude and 110,000 b/d of fuel oil came from Venezuela in September, the month the exporter’s crude production averaged 770,000 b/d, S&P Global data showed.
Opening Venezuelan crude to the broader market means that the country will likely decrease its discount on crude sold to China. Chinese independent refineries currently absorb about 430,000 b/d of Venezuelan crude. S&P Global analysts said about half of those volumes could get diverted to other destinations.
“In India, Reliance and Nayara Energy would be most benefitted from Venezuelan crude since they have refiners with high complexity that can process the heavy grades,” said Rajat Kapoor, managing director for oil and gas at Synergy Consulting.
“With the US now officially easing sanctions of Venezuelan crude, we should expect larger volumes to flow into India. Indian private refiners have previously engaged in crude-for-products arrangements with Venezuela, benefiting both countries while also helping India curtail its hard currency outflows,” Kapoor added.
Affinity for heavy grades
During the years just before the sanctions were imposed, India imported approximately 300,000 b/d of Venezuelan crude grades, with the bulk of the volumes being bought by Reliance Industries. Venezuelan crudes imported by Indian refiners, such as Merey-16 and Hamaca, are typically heavy, with high sulfur and high asphaltene content, producing a higher percentage of residue.
“Venezuelan crude imports will also help refiners to diversify their sources of crude oil. With OPEC+ extending their cuts, it will help in reducing dependency on an existing supply source, enhancing overall supply chain resilience,” Ritolia said.
Analysts said favorable refining economics of Venezuelan crude, attributed to their discounts, might prompt Indian refiners to contemplate displacing some crude from their existing sources, specifically, those that are ranked lower in terms of margins. This potential shift could involve transitioning from Middle Eastern, Latin American or US sources to capitalize on the advantages associated with processing Venezuelan crude.
However, with the start of inflows of Venezuelan crude, analysts don’t expect a reduction in the imports of Russian crude by Indian refiners, especially Urals. Although the discount on Russian crude has decreased in recent months, it still maintains a considerable advantage when compared with other sources, analysts added.
Since Russia’s invasion of Ukraine in February last year, Indian refiners have been taking advantage of discounted Russian oil. Consequently, Moscow surged ahead to become India’s primary source of crude oil in 2023.
Russian crude imports to India reached around 1.73 million b/d, or around 37% of India’s total imports, in the January-November period, compared to 0.59 million b/d, or around 13% of India’s total imports, during the same period in 2022, S&P Global data showed (spglobal.com).
