Cheap Venezuelan oil to India turns costlier as traders eat into margins

Early this year, when sanctions were briefly lifted, state-run Venezuelan oil company PDVSA sold Venezuelan export benchmark Merey grade at a $20 per barrel discount to European benchmark Brent

India is losing access to its cheapest crude oil grade because of high margins charged by traders offering partially sanctioned Venezuelan oil, reducing the value of the commodity for Indian refiners, industry sources and officials told Business Standard.

 

Venezuelan oil played an important role in the past in boosting refining margins.

 

Traders reselling Venezuelan crude oil to India are eating into the generous discounts offered by Venezuelan state-oil company PDVSA earlier this year, Indian officials said.

 

Traders are now retaining margins of $8-10/barrel, refining sources said. Venezuelan oil delivered to India was cheaper by $12.5 per barrel in September compared to Brent crude oil. That compared to a discount of as much as $20/barrel in February and March.

 

As a result, Venezuelan import in terms of quantity in the past few months has not matched the early 2024 levels, the ship-tracking data show and officials say.

 

India imported Venezuelan crude oil of 132,000 barrels per day (bpd) in November, less than 3 per cent of the total oil import, compared to nil in October and 65,000 bpd in September. That compares to 175,000 bpd and 154,000 bpd in February and March, respectively.

 

India bought a record 425,000 bpd of Venezuelan oil in 2016. 

 

Reliance Industries, typically the biggest buyer of Venezuelan crude oil, has cut purchases. Imports declined to around 63,000 bpd in November and 65,000 bpd in September (nil in October) from 154,000 bpd in March and 106,000 bpd in February, according to market intelligence agency Kpler. Venezuelan oil has been profitable for Reliance Industries, industry officials said.

 

Indian Oil bought 28,000 bpd in November and state-run Oil and Natural Gas Corporation (ONGC) imported 40,000 bpd, the data showed. Indian Oil and HMEL also bought a combined 69,000 bpd in February.

 

State-run refiners, led by Indian Oil, have upgraded their plants, with some facilities able to process high sulphur oils, sparking an interest in Venezuelan grades. 

 

Russia continued to maintain its hold as India’s biggest crude oil supplier at 1.78 million bpd in November (38 per cent of the total import of 4.7 million bpd) followed by Iraq and Saudi Arabia at 870,000 bpd and 620,000 bpd, respectively, according to the Kpler ship-tracking data.

 

When the Biden administration lifted sanctions on Venezuela’s oil sector late last year, PDVSA sold Venezuelan export benchmark Merey grade to India at a discount of $20 per barrel to European benchmark Brent. (PDVSA is now debarred from directly trading in Venezuelan oil after the United States revived sanctions.)

 

Such discounts were needed because the quality of Venezuelan Merey grade is poor and cannot be easily processed, industry officials said. However, the recent markdown in discount, by $8 a barrel in September from February, after resellers got involved in the trade, has eroded the value Indian refiners derive from Venezuelan oil, a senior government official told Business Standard.

 

Indian Oil and ONGC-owned Mangalore Refinery and Petrochemicals Ltd (MRPL) lack the licence from Washington to buy Venezuelan grades. But a senior Indian official said one needed the licence only to buy directly from Venezuela and not from resellers or traders of Venezuelan oil. Only Reliance has the licence to buy directly from Venezuela. Reuters said that Indian Oil and MRPL cargo in November came via Vitol. 

 

The Office of Foreign Assets Control (OFAC), under the United States (US) Treasury Department, which enforces sanctions, declined to tell Business Standard if Vitol has the licence. 

 

Under sanctions 

 

Before 2020, Venezuelan grades were typically sourced by Reliance Industries and Nayara Energy because their refineries were able to process dirty grades. But Venezuelan supplies to India stopped after 2020 because US sanctions tightened before resuming towards the end of 2023.

 

Venezuelan Merey export grade oil is a poor-quality, high-sulphur and acidic grade and can be processed only at some Indian refineries like Jamangar, Vadinar, Bina, and Paradip. 

 

Venezuela was under sanctions for many years but the Biden administration lifted the ban on Venezuelan crude sales for six months beginning late October 2023 if Caracas agreed to certain conditions. But Venezuela declined to budge and sanctions were reimposed in late April this year. But this time around, there were relaxations for certain western oil companies like Chevron that had oil production operations in Venezuela.