The suspension of U.S. sanctions on Venezuelan oil has rattled its biggest customers, China's independent refiners, who are now holding off on making new purchases amid wide discrepancies in offer prices, trading sources say.
The independent refiners have for years bought Venezuelan oil at steep discounts, but since Washington lifted sanctions in mid-October for six months, global energy firms and trading houses Vitol, Gunvor and Trafigura have gradually resumed purchases.
Sellers and Chinese buyers are now struggling to agree on prices, two China-based sources said. China's purchases have also slowed amid low seasonal demand for asphalt - a key product made from Venezuela's heavy crude.
"The market is in disarray," said a manager at a Chinese independent refinery, who, like other sources, declined to be named as he is not authorised to speak to the media.
Independent refiners, known as teapots, account for a fifth of China's oil purchases, and more than half of its asphalt production. They have mainly relied on deeply discounted sanctioned oil from Venezuela - as well as Iran and Russia - as feedstock.
Since the Venezuela sanctions were suspended, the discount range has become unpredictable, the sources said.
Offers for Venezuelan cargoes arriving in China in early 2024 are coming in with discounts of $9 to $19 a barrel to ICE Brent, an unusually wide range. When it was sanctioned, Venezuelan crude traded at about $20 a barrel below ICE Brent on a delivered-ex-ship (DES) basis in China for October delivery, the sources added.
WAITING FOR PETROCHINA
The refiners are also waiting to see what state-owned PetroChina (601857.SS) will do.
PetroChina is seeking to buy up to 8 million barrels per month of Venezuelan crude from PDVSA, Reuters reported early this month, but has yet to seal a deal, traders and company sources said.
"Buyers are staying put despite expectations of higher prices and tighter supply, as they are waiting to see if and when PetroChina will come back to the market," the refinery manager said.
PetroChina, PDVSA and the Venezuelan oil ministry did not immediately respond to requests for comment.
Before the U.S. imposed sanctions in 2019, subsidiary PetroChina Fuel Oil Co was the key seller of Venezuelan oil to independent refiners.
Independent refiners like Venezuelan heavy crude for its high yield of road-paving material asphalt at about 60%, versus around 45% for Iranian oil. Also, refiners can import the oil as diluted bitumen, without using precious crude import quotas, according to traders and analysts.
However, China's diluted bitumen imports in October fell to 801,402 metric tons, the lowest since May, official data showed, and inventories are hovering near 2023's peak of about 1.54 million tons, according to data compiled by China-based energy consultancy Longzhong.
China's demand for heavy crude could rebound before March, when construction resumes in warmer weather. Independent refiners may then be forced to switch to more costly heavier oil sourced locally or from Iran, Iraq or Canada if Venezuelan oil remained expensive, the traders said.
Despite a slight increase in Venezuela's output, the OPEC producer's exports to China directly and through Malaysia have fallen about 9% to 435,000 barrels per day so far this year from a year-ago, according to shipping data and documents from Venezuela's state-oil producer PDVSA.
