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A loss of Venezuelan oil production in case of a U.S. military intervention will materially impact global benchmark prices as the market will have to replace Venezuela’s heavy crude—the bulk of Caracas’ crude exports, according to Rystad Energy.
Venezuela is estimated to pump about 1.1 million barrels per day (bpd) of crude oil at present. If the U.S.-Venezuela tension escalation into a U.S. incursion in the South American country, this volume of crude would be at risk, depending on the scale of military activity, the energy intelligence firm said.
“Although the volume is small in terms of global trade flows, the quality is unique as over 67% of the output is heavy,” Rystad Energy noted.
The U.S. military build-up in the southern Caribbean continues and a military intervention isn’t being ruled out.
If such an intervention occurs, Venezuela’s supply to China, its key and pretty much only customer, could be reduced or completely shut-in, according to Rystad Energy.
China depends on heavy crude supplies from Venezuela to maximize secondary conversion unit utilization.
“The Venezuelan grades are an ideal fit for these refineries, and the loss of supply would tighten the heavy crude oil balance,” Rystad Energy reckons.
As a result, the overall tightening of the global heavy market would boost the prices for the heavy grades that the U.S. imports, especially the Canadian heavy crude grades. A temporary loss in Venezuelan production is also expected to push up the price of the Dubai benchmark against ICE Brent as Asia will scramble to replace the lost Venezuelan barrels, according to Rystad Energy.
Earlier this week, Kpler said that potential supply disruptions would shift Chinese and U.S. refiners toward alternative heavy grades across the Americas and Middle East. The closest substitutes for Venezuela’s flagship super heavy grade Merey in terms of API and sulfur are to be found in its vicinity—Colombian grades such as Castilla, Apiay, Magdalena, and Mares, according to Kpler’s analysts.
