US sanctions on major oil exporting country Venezuela are having profound effects on the global oil trade, prompting US refiners to seek alternative crude supply and shifting Venezuelan crude flows more toward Asia.
But one of the less obvious knock-on effects, and one that benefits exporters of US crude, is lower costs for an obscure leg of the journey that takes US crude to Asian shores called “reverse lightering.”
US crude exporters typically need to use reverse lightering, a process whereby crude is transshipped from a smaller tanker onto a larger one in the Gulf coast, when shipping to Asia. This is necessary because the shallowness of US ports prevents larger tankers used for long-haul journeys from fully loading cargoes directly.
The smaller tankers that are commonly used as the lightering vessels in this process – Aframaxes – are the same types of tankers that had been transporting Venezuelan oil to US Gulf refiners.
When the US effectively cut oil flows between the US and Venezuela with sanctions against the South American country’s state energy firm PdV on 29 January, more Aframax tankers became available for reverse lighterings.
This allowed US exporters to negotiate lower reverse lightering costs for their shipments to Japan, South Korea, China, India, and other faraway importers. The assessed rate for one reverse lightering job on an Aframax has averaged $215,000 lump sum since Argus began publishing rates in its Argus Freight publication on 22 June (available in Argus Freight, Argus Crude and Argus Americas Crude). The figure is down from as high as $400,000 in December 2018, when regional Aframax supply was more stretched with the additional loadings in Venezuela.
That decrease from $400,000 to $215,000 means that with three Aframaxes needed to fill a VLCC, which can carry roughly 2mn bl of oil, US sanctions against Venezuela have helped save 28₵/bl on transportation costs.
And that’s an effect of Venezuela’s sanctions that US oil exporters will welcome on their balance books.