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
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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.


Singapore luxury apartment sales surge to 11-year high

Updated 20 September 2019

Singapore luxury apartment sales surge to 11-year high

  • Sales of such apartments also exceeded the numbers racked up for each full year from 2011 to 2018, the consultants’ analysis of transaction data shows

SINGAPORE: Sales of Singapore apartments worth at least S$10 million ($7.3 million) have hit an 11-year high, fueled by increased demand from Chinese millionaires seeking safe-haven assets, say property consultants OrangeTee & Tie.

Investors have long viewed Singapore as an island of stability that attracts the super-rich from its less developed Southeast Asian neighbors, as well as multimillionaires from mainland China.

In the first eight months of 2019, 68 condominium units in the wealthy Asian city-state were sold for S$10 million and more, the highest tally since the corresponding period of 2008.

Sales of such apartments also exceeded the numbers racked up for each full year from 2011 to 2018, the consultants’ analysis of transaction data shows.

Some buyers may have sought an alternative to rival financial hub Hong Kong, hit by protests, while others may have shifted funds from China after its yuan currency was devalued in a trade war with the US, an OrangeTee expert said.

“This may explain why we have observed more foreign buyers, especially mainland Chinese, coming into Singapore lately,” said Christine Sun, its head of research and consultancy.

Mainland Chinese are the biggest group of foreign buyers of Singapore luxury homes.

In Singapore’s prime districts, Chinese citizens bought 76 apartments worth more than S$5 million from January to August, versus 75 purchases by Singaporeans, data until Sept. 19 show.

Expensive apartments in premium neighborhoods are mainly bought by foreigners, because at such high prices Singaporeans have the option to buy landed property, such as bungalows and mansions.

Singapore does not allow foreigners to buy landed homes, except for those on the resort island of Sentosa.

“We do see that even though the stamp duties have increased .... we are still seeing people putting big money on these apartments, predominantly it is more for stability than anything else,” said Boon Hoe Leong, chief operating officer of high-end realtor List Sotheby’s International Realty.

He was referring to measures Singapore adopted last year to cool its real estate market, such as hiking additional stamp duties for foreign buyers to 20 percent from 15 percent.

“They are parking their money here — they know that the Sing dollar won’t depreciate overnight,” he added.