According to a report by S&P Global Commodity Insights, after the US lifted sanctions on oil from the Latin American nation, Indian refiners are expected to import crude oil from Venezuela at discounted prices.
Venezuela’s state-run oil company, PDVSA, has “little to no investment capital, and much of the oil-related infrastructure is in a poor state of repair.” Little change in the country’s capacity to produce oil is anticipated in the next six months. With a production of about 750,000 barrels per day (bpd), Venezuela’s current capacity is between 800,000 and 850,000 bpd.
The US lifted sanctions against Venezuela earlier this month in exchange for the opposition and government agreeing to have foreign observers oversee the country’s elections the following year. In the medium to long term, US action creates the chance for growth in production and recovery, provided that political agreements are maintained.
The US Treasury Department eased trade, financial, and oil sanctions against Venezuela. For six months, the Treasury has granted a “general license” that allows previously prohibited activities. Should the Maduro government fulfill its electoral and political obligations, this license may be extended. Now, US oil firms are permitted to investigate and promote investments in Venezuela.”
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India, an old oil trade customer of Venezuela
Before the US sanctions, it was mentioned that India was a frequent buyer of Venezuelan crude oil grades. Between 2017 and 2019, India imported about 300,000 barrels per day of Venezuelan crude grades before the imposition of sanctions, with private refiners being the main purchasers. According to S&P Global data, these imports made up between 5 and 7% of India’s total imports of crude oil during that period.
Merey-16 was the main Venezuelan crude grade that India imported for most of those years. This grade has an average API gravity of about 16 and is extremely heavy, sour, and high in acid. Because Merey-16 is a challenging material, processing it requires advanced techniques and operating conditions. As a result, Indian refiners were able to purchase Venezuelan crude at significant savings when compared to crude from other areas.
Over the last few years, India has expanded the sources of its oil imports. However, after February 2022, Russia will become India’s top crude supplier, offering lower prices due to Western restrictions. Just 2% of India’s total oil imports in FY22 came from Russia; in FY23, it made up nearly 25% of the 235.52 million metric tons of crude oil that India imported. The US, the UAE, Saudi Arabia, Iraq, and the US are among India’s other principal suppliers.
Will India have maximum access to Venezuelan oil exports?
The fact that US oil refiners can now purchase oil straight from PDVSA, Venezuela’s state-owned oil company, is more promptly essential. This might result in more Venezuelan oil being sent to the US for financial purposes rather than to China, where it is used to settle debt. In the US Gulf Coast market, Venezuelan barrels will face competition from other heavy oil grades from Latin America and Canada.
After the sanctions on Venezuelan oil were lifted, Asia might not be too happy because of the potential for increased competition for those Latin American cargoes, which could make it harder for buyers like China and India to source additional cargoes from the suppliers and force them to look to the Middle East to fill the void.
According to Indian government officials, the nation’s overall energy security policy will determine how much crude is imported from Venezuela going forward. However, analysts noted that although the possibility of increasing Venezuelan crude exports to India seems unlikely, things might change in the medium- to long term.
Since India is a net importer of crude oil, the economic effects of the world’s oil supply have a significant impact on the country’s ability to maintain price stability. India’s macroeconomic situation is still stable right now, but it is vulnerable to one major risk: a disruption in the supply of crude oil due to the war’s escalation, which would cause prices to soar.
If Iran, a country that heavily backs Hamas, joins the conflict, global crude oil prices could rise dramatically. Should that occur, the market might experience pressure to sell. The world economy already faces an oil market deficit as major oil producers Saudi Arabia and Russia announced that they will be cutting their oil supply by a combined 1.3 million barrels per day (mbpd) until the end of the year. Hence, India is turning towards Venezuela and other countries to meet its oil demand daily and at a discounted price.