The Biden administration's decision to reimpose sanctions on Venezuelan oil exports is expected to reduce the country's crude output by nearly 11% by year's end, reducing shipments of heavy sour crude used in U.S. refineries.
The State Department on Wednesday said it will not renew a general license that expired Thursday authorizing transactions related to Venezuela's oil and gas sector.
The agency said it would allow for a 45-day wind down period before the sanctions fully take effect. It also said it will consider requests for specific licenses to continue doing business with Venezuela on a case-by-case basis at the end of the 45-day period.
The Treasury Department said the decision to resume sanctions came after Venezuelan President Nicolas Maduro failed to live up to commitments to allow free and fair presidential elections in his country.
The Biden administration in October lifted a range of sanctions against the country's oil and gas sector after Maduro agreed to hold fair elections.
But on Wednesday, the State Department said Maduro's arrest of members of the opposition and orders barring opposition candidates from seeking office are inconsistent with agreements about the election reached in Barbados in October.
"Despite delivering on some of the commitments made under the Barbados electoral roadmap, we are concerned that Maduro and his representatives prevented the democratic opposition from registering the candidate of their choice, harassed and intimidated political opponents, and unjustly detained numerous political actors and members of civil society," Treasury said.
Markets had been aware the U.S. could again crack down on Venezuelan oil exports. In February, the Biden administration had warned it might reimpose sanctions unless Maduro lived up to the agreement.
In a note to clients on Thursday, Rystad Energy said reimposing sanctions does not mean the U.S. is returning to its maximum pressure campaign against Maduro's government. Chevron, which Rystad said is the largest contributor to the recent short-term growth in Venezuelan oil production, will be allowed to continue operating in the country under a separate license it received in November 2022.
Chevron is producing about 170,000 b/d and expects to increase that to 200,000 b/d by the end of the year, according to Rystad.
The U.S. plan to consider requests for other licenses could also provide a way for businesses such as Repsol, ENI and Maurel & Prom that had been granted special licenses earlier to continue working in the country, the firm said. "With the U.S. seeming quite open to issuing special licenses, we can expect some positive news," Rystad's analysis said.
Still, the reimposition of sanctions will likely reduce the supply of oil coming out of Venezuela.
While Rystad had forecast Venezuelan production could rise to 1.1 million b/d by the end of next year, the company said it expects sanctions to cause production to plateau at about 910,000 b/d this year, then fall to 890,000 b/d in 2025.
The company also said the reimposition of sanctions comes as the market for the heavy sour crude used by many U.S. refineries is particularly tight.
The expected start of service next month on the Trans Mountain Pipeline's expansion project, which will provide access for Canadian heavy crude to Pacific Coast shipping terminals means U.S. refiners will be competing with Asian buyers for barrels from that country.
The promised start of commercial operations at Pemex's 340,00 b/d Dos Bocas refinery in Mexico also could divert Mexican sour crude supply from buyers in the U.S., Rystad said.
In addition, heavy sour crude production in Ecuador and Colombia is expected to fall this year, dropping by 24,000 b/d and 13,000 b/d, respectively, Rystad said.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Steve Cronin, scronin@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com
(END) Dow Jones Newswires
04-18-24 1440ET
