(BOE Report) – U.S. Gulf Coast refiners are snapping up higher volumes of Middle Eastern and South American crudes to offset the loss of Venezuelan and Mexican barrels, according to ship tracking data, a workaround solution that might be short-lived if the U.S. allows some sanctioned Venezuelan crude to return to the market.
The shake-up in trade flows reflects a shortage of medium and heavy crude grades at the key Gulf Coast refining hub which has struggled in recent months to secure adequate supplies amid Mexican production and quality challenges, and Washington’s pressure strategy on Venezuela’s sanctioned energy industry.
The U.S. Treasury Department in March revoked key licenses that allowed some companies to export Venezuelan oil and fuel to the U.S. after President Donald Trump criticized the OPEC nation’s record on migration and democracy.
However, the administration is now preparing to grant new authorizations to key partners of Venezuela’s state-run PDVSA to allow them to operate with limitations, which could include oil swaps, five sources close to the matter said this week.
The U.S. imported about 175,000 barrels per day (bpd) of Venezuelan crude on average this year before the licenses were revoked, accounting for about 16% of Gulf Coast oil imports, according to data from research firm Kpler.
Meanwhile, imports of popular Mexican heavy grade Maya have fallen to 172,000 bpd so far in July, the lowest on record due to declining output and quality issues that have cut interest in the grade.
To replace those volumes, Gulf Coast refiners are resorting to other South American producers such as Colombia, Brazil and Guyana, with imports in July reaching the highest in over five years.
Shipments of heavy, high-sulfur crude from Colombia, including Castilla and Vasconia grades, more than doubled to 225,000 bpd so far in July, the highest monthly level in three years.
In the same period, some refiners also stepped up imports of medium, lower sulfur, crudes from Guyana such as Unity Gold and Payara Gold to about 95,000 bpd, while heavy, high-sulfur oil from Brazil, including Peregrino, rose 58% to 57,000 bpd.
Gulf Coast imports of oil from the Middle East, mainly Iraqi Qaiyarah, Kuwait’s Eocene and Saudi Arabia’s medium sour Arab Light, also ramped up sharply this month to 212,000 bpd, the highest since January.
The bulk of the crude oil produced in the United States is light and low in sulfur, not ideal for refineries in the U.S. Gulf that typically prefer to process heavier oil.
Switching to crude grades of vastly different characteristics can be operationally challenging and limit production, shrinking margins.
If sanctioned Venezuelan oil returns to the U.S. market through the Washington-authorized swaps, many Gulf Coast refiners might again switch to their preferred heavy grades, which helps their margins.
(Reporting by Arathy Somasekhar in Houston Editing by Marguerita Choy)
