The United States announced April 17 that it will snap back sanctions on Venezuela's oil and gas sector with a 45-day window to wind down operations, after Venezuelan President Nicolás Maduro failed to meet his commitment to make progress toward a free and fair election in July.
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Register NowThe policy change could have some impact on global oil flows by shifting more Venezuelan crude purchases to China. And expectations that sanctions would be reimposed on Venezuela have helped to tighten crude and fuel oil price spreads.
However, the move did not impact Chevron's General License 41, and it leaves open the door for other companies to apply for similar individual licenses.
License options
"With the wind down today of the public general license individual companies may now apply for specific licenses related to activities in Venezuela's oil and gas sector, which will then be evaluated on a case-by-case basis," a senior administration official said during an April 17 background press briefing.
"Although the Venezuelan authorities have met some key commitments, they've also fallen short in several areas," another senior administration official said.
"The areas in which they have fallen short includes the disqualification of candidates and parties on technicalities and what we see as a continued pattern of harassment and repression against opposition figures and civil society," the other official said. The officials spoke on the condition of anonymity.
Maduro's government has disqualified the leading opposition candidate, María Corina Machado, and did not allow registration of her designated alternative candidate, Corina Yoris, the other official noted.
The US in October issued General License 44, which authorized transactions related to oil and gas for six months, after an agreement in Barbados between Maduro and the political opposition to hold fair presidential elections in 2024.
The US has now decided that Maduro did not hold up his end of the deal and will not be renewing GL 44 when it expires April 18. Instead, the US will issue a new license, general license 44A authorizing a 45-day wind down period for transactions related to oil and gas sector operations in Venezuela, according to the background briefing.
Venezuelan production has increased since the October issuance of GL 44. State-owned PDVSA and its partners produced an average of 870,000 b/d in crude oil production in March, up from 760,000 b/d in October, according to estimated data included in the PDVSA production report, which S&P Global Commodity Insights has reviewed.
Price impacts
Market expectations that GL 44 would expire has had an impact on crude and fuel oil price spreads.
The Western Canadian Select at Hardisty crude price discount to WTI was assessed at an $11.75/b discount on April 16, tightening from a $13.25/b discount the prior day, according to Platts assessments. Venezuelan crude exports have edged higher since sanctions were lifted, averaging roughly 560,000 b/d so far in 2024, up from 549,000 b/d in 2023 and 273,000 b/d in 2022, S&P Global Commodities at Sea data shows.
Likewise, Venezuela has also boosted exports of high sulfur fuel oil. The USGC HSFO price discount to Dated Brent was assessed at $16.07/b April 16, tightening from a $19.21/b discount April 9, Platts data shows. Platts is a unit of S&P Global Commodity Insights.
Venezuelan crude flows have shifted since the October sanctions relief. In the five months before GL 44, from May 2023 through September 2023, US imports of Venezuelan crude averaged 158,000 b/d, hitting a high of 194,000 b/d in September, according to S&P Global Commodities at Sea data. But in the five months since the license, from November 2023 to March 2024, imports have crept up to average 170,000 b/d and are slated to hit 241,000 b/d in April, CAS data shows.
With the expiration of GL 44, flows of Venezuelan crude are expected to shift back toward China. "The net result of the snapback is likely to put China back in the driver's seat on pricing on the bulk (60% of production)," said Rachel Ziemba, senior advisor at political risk consultancy Horizon Engage. "Chinese buyers will be the marginal buyer."
The policy shift might reduce the chances of additional Venezuelan production and might mean a short-term modest reduction in trade as buyers scramble to learn the new rules, Ziemba said.
The policy change will not have much of an impact on global balances given that the delta on Venezuela's production is relatively small, Ziemba noted. "But it could have more impact on heavy crudes due to the coincident reductions in Mexican supplies," she said.