Refiners make margin call on Venezuela 

Venezuela produces about 1.4 million barrels a day (bpd) of extremely heavy sour crude that attracts sophisticated refineries in order to maximize refining margins. (Reuters)
Updated 03 February 2019

Refiners make margin call on Venezuela 

RIYADH: The Brent crude oil price rose slightly to $62.75 per barrel and WTI advanced to 55.26 per barrel at the end of last week, amid concerns over tight supplies of medium and heavy crudes as a result of OPEC output cuts and uncertainties over the implications of US sanctions on Venezuela that have further tightened availability of medium and heavy sour crudes.

Such tightness concerns have pushed the price of the Dubai benchmark slightly above Brent for the first time since August 2015 as reported by Platts S&P Global.

Venezuela produces about 1.4 million barrels a day (bpd) of extremely heavy sour crude that attracts sophisticated refineries in order to maximize refining margins. 

Venezuela’s crude oil exports to the US fell from 840,000 bpd at the end of 2015 to about 506,000 bpd in October 2018. Hence, the US is the primary destination for Venezuelan crude and receives about 41 percent of Venezuela’s total heavy oil exports. Despite the US sanctions, low shipping rates might stimulate the sophisticated Asian refiners, who are already hungry for such heavy crude.

On the other hand, Venezuela imports naphtha from the US to dilute its own heavy crude and help it flow through the pipelines for export.

With the slump in naphtha prices and extremely low shipping rates, diluting Venezuela’s heavy crude is not getting any harder amid ample low-priced naphtha supplies from Europe, Russia and elsewhere.

Since Venezuelan heavy crude is a difficult feedstock to substitute, it will be much easier for Caracas to substitute US naphtha imports, while it will be extremely difficult for the US to replace the Venezuelan heavy crude amid the tight market for this grade. 

Most US refineries are located in the US Gulf of Mexico, and are sophisticated with deeper conversions that run medium and heavy crude from the Arabian Gulf, Venezuela and from the offshore oil fields in the US Gulf of Mexico.

However, the US still face significant technical challenges with some other deepwater fields in the Gulf of Mexico that raises concerns about potential supply growth.

Another resolution to replace the Venezuelan heavy crude is releasing cargoes from the US strategic petroleum reserves (SPR), which the US government might be considering to compensate the upcoming supply shortfall from Venezuela. 

This step might help to replace the Venezuelan crude supply, but concerns over crude quality that might be contaminated won’t be welcomed by the sophisticated US refineries.

This is a crude quality problem that could make the US SPR crude less attractive and less useful since refiners would still need to spend time and money removing contamination before the refining process.

Regardless of any SPR contamination possibility, it is uncertain that these barrels will exactly match the refining configuration of the US Gulf refiners to process the exact quality of Venezuelan crude.

This will be another dilemma that refiners must go through, which might affect their economics.


Oman’s sultan says government will work to reduce debt

Updated 34 min 39 sec ago

Oman’s sultan says government will work to reduce debt

DUBAI: Oman's Sultan Haitham bin Tariq al-Said said on Sunday the government would work to reduce public debt and restructure public institutions and companies to bolster the economy.
Haitham, in his second public speech since assuming power in January, said the government would create a national framework to tackle unemployment while addressing strained public finances.
"We will direct our financial resources in the best way that will guarantee reducing debt and increasing revenues," he said in the televised speech.
"We will also direct all government departments to adopt efficient governance that leads to a balanced, diversified and sustainable economy."
Rated junk by all three major credit rating agencies, Oman's debt to GDP ratio spiked to nearly 60% last year from around 15% in 2015, and could reach 70% by 2022, according to S&P Global Ratings.
The small oil producing country has relied heavily on debt to offset a widening deficit caused by lower crude prices. Also, the late Sultan Qaboos, who ruled Oman for nearly 50 years, held back on austerity measures.
The country has delayed introducing a 5% value added tax from 2019 to 2021, and economic diversification has been slow, with oil and gas accounting for over 70% of government revenues.
Last week, rating agency Fitch said Oman was budgeting for a higher deficit of 8.7% for 2020 despite its expectation of further asset-sale proceeds and some spending cuts.
"We are willing to take the necessary measures to restructure the state's administrative system and its legislation," Haitham said in his first speech since the mourning period for Qaboos ended, without elaborating.
He said there would be a full review of government companies to improve their business performance and competence.
Oman observers have said that if Haitham moves to decentralise power it would signal willingness to improve decision making. Like Qaboos, he holds the positions of finance minister and central bank chairman as well as premier, defence and foreign minister.