Camila Fontana: Hello, everyone. We're back with Market Talks, the weekly Argus podcast on the commodities and energy sectors. I am Camila Fontana, deputy bureau chief of the Argus office in Brazil. And today my guest is João Scheller, who covers the oil markets in Colombia, Ecuador, Argentina and Guyana.
Oil producers, consumers and traders around the world are reacting to the trade policy outlined by US President Donald Trump. Today my guest and I will discuss how this dynamic is impacting demand and prices for crude produced by Colombia and exported mainly to the United States, with repercussions beyond Latin America.
So, João, let's start by providing some context for our listeners. Could you talk about how much oil Colombia produces? What type? Who buys it?
João Scheller: Sure. Well, first of all, thank you for having me here, Camila.
Colombia produces what we call a heavy-sour sort of crude oil, which is also produced in other Latin American countries such as Ecuador and Mexico, but different than other types also produced in the region.
So, you would have a more medium crude produced in Brazil, and a more light crude on other hand in Argentina. So, it varies a lot. And the different types of crude oils they are especially important because they are used by refiners to produce all the products that we have from crude oil, and it varies from refinery to refinery.
Some refineries have hardware that is set up to process heavier crudes and others lighter crudes and so on. So, Colombia is positioned in the north of South America. And we have the country there in a strategic location, with a direct route to the U.S. Gulf Coast.
So, when you talk about Colombian exports, you're talking about over 50pc of all crude exports from Colombia going directly to the Gulf Coast, which is Colombia's main export market. We also have some exports of crude oil going to India, going to other eastern countries, but mainly to the US Gulf Coast
CF: Without having to cross the Panama Canal.
JS: Exactly. So yeah, that's the point. Perfect. So, if you would take a look at Ecuador, for example. Ecuador has a crude production which is not as big as Colombia, but it is big as well considering other surrounding countries. But to take it to other parts of the United States, it is harder. You have to go, as you said, cross the Panama Canal, get it into a smaller vessel, pay all the fees and take all the time that you take to cross the Panama Canal. So, it makes it harder.
That is the reason, for example, the crude produced in Ecuador goes mainly to the US West Coast, which is well in the same Pacific coast, easier to get. All of that.
That's basically the scenario for Colombian crude production. The time to produce there.
CF: And what about the quantity?
JS: Sure. Yeah. Well, they produce about 700,000 barrels a day, which is a considerable amount of crude.
If you are talking about the production here in Latin America, you have Argentina and Brazil also as big crude producers. Guyana is also increasing its crude production. But Colombia is one of the region's main players.
CF: So, let's talk about tariffs or non-tariffs. Can you take us back to this whole process? And I think it really started after President Trump won the election, even before he took office. So, can you walk us through this process?
JS: Sure. Yeah. It's very interesting. We have to head back to November last year, when Trump had just won the presidential election and was obviously already talking about all his plans for his mandate. And he mentioned at the end of November that he was planning to impose tariffs on all imports from Canada and Mexico into the United States.
That was a 25pc tariff. So that is a considerable amount of tariffs that would be imposed on all those products. And also, it is important to remember that Canada and Mexico are the main trading partners of the United States. So, it would be a very considerable amount of tariffs. And that would impact eventually commodities as well, commodity markets and crude oil.
So, imagine if you were in a position of a refiner to take now all of your supplies with a 25pc increase in prices. So, it is relevant and that started to move the market a bit. The thing, though, is that people didn't believe at first completely that Trump would impose those tariffs, at least not at this high level.
Some market participants mentioned that they thought that he would impose them gradually. Some of them said he would just use that as a bargaining chip. There are many possibilities. The thing is, between November and January, when Trump took office effectively, we had a lot of talks about those tariffs. But considering the impacts in the crude oil market, they started to get more real and people started believing them when Trump was close to being sworn into office.
And, at that time, what was the whole situation? Why Colombia matters in that scenario?
Colombia exports, as we mentioned, most of its crude to the United States, to the Gulf Coast, where refiners mostly take, besides Colombian barrels, they take a lot of Mexican and Canadian supplies, heavy sour supplies, the same quality as Colombia’s.
What happened is that when the tariffs start to be a thing, or at least a possibility, refiners in the United States were looking to secure supplies from other places that could substitute those possibly tariff barrels.
CF: From Mexico and Canada.
JS: From Mexico and Canada, mostly. So, Colombian prices would therefore increase in value because more people were looking for those supplies.
And we started to see in January, even before Trump effectively talked about tariffs and imposed tariffs, we started to see the prices going up a bit in Colombia. And that gradually continued in the consecutive months. So, you had a bit of a price increase in January. For the next month with the next loading program we had in Colombia, we had prices increasing a little bit more. And also in March.
The curious fact about that is that tariffs were never imposed. So, you never really had tariffs being imposed on Canadian and Mexican imports. What you had was Trump getting close to the deadline he previously set up. And then he would say “All right, well, we'll postpone that to the next month.” And then again.
So, the market had to play with this threat of tariffs that never actually happened. And that moved the market a lot.
What happened though is that on April 2nd, when we had that main Liberation Day, as Trump said, we had a different outcome. We didn't have Mexican and Canadian imports being tariffed at all. We had tariffs, a lot of different commercial partners from the United States. But we didn't have any on Canada nor Mexico.
So, what happened is that the reason, at least the main reason, for those Colombian oils being in such a high price at the time didn't exist anymore. So, what we saw is that we got Colombian prices reaching multi-year highs in March. And then right after Trump announced the tariffs and maintained Canada and Mexico in the same situation, under the free trade agreement that they have, Colombian prices started to decrease a bit, but still not on the same level as they were at the start of the year.
Although all of this could change. I mean, markets are always changing and when you're talking about Donald Trump, it is very uncertain. Uncertain is the main word.
CF: In addition to the tariffs, we probably have other factors that are playing into demand and prices for Colombia. Colombia is on the border with Venezuela, for instance, and they have some similarities in their crude production.
So, could you talk about the other factors that could be impacting this market in addition to the tariffs and threat of tariffs or talk of tariffs?
JS: All the tariffs. Absolutely. Well, probably the second main factor affecting Colombian prices right now is how Venezuela crude exports will change in the next few months.
So basically, just recapping a little bit, we have the crude production of Venezuela is significant. They have the main oil reserves in the world. So, they have a lot of crude oil there that can be exported. The main reason for having Venezuela not exporting as much, not producing as much is mainly economical issues that happened in Venezuela through the past years.
And we did have some foreign companies operating in Venezuela as well. And one of them is Chevron. The thing is, Venezuela has been the target of a lot of sanctions from the United States since Nicolas Maduro took office and especially in the last few years when the political scenario in Venezuela started to get trickier.
What we saw last year, during the Biden administration, was a waiver for Chevron to operate again in Venezuela and export its crude production to the States. We also had some waivers from the United States to other companies worldwide, a few companies. So Spanish Repsol, for instance, also received a waiver, but the main company targeted by this waiver was Chevron.
They were operating in Venezuela since last year again and exporting about 200,000 barrels a day of crude oil to the United States, mainly to the Gulf Coast of the United States, which is the same market as Colombian barrels go to. So, what happened this year, and more specifically in March, is that Trump announced he would revoke this waiver.
So, Chevron would not be able to export any crude production had in Venezuela to the United States anymore, effectively taking 200,000 barrels a day from the Gulf Coast. So, you do have an opportunity there for other producers that have similar quality crudes to target that market and to sell those barrels in the market, which is the case of Colombia.
So, prices in Colombia have been affected by that because it could be a substitute for those Venezuelan barrels as well. But at the same time, it's not being as a big factor and so dominant as has been all the tariffs and all the threats up there.
We also had some issues with Mexican crude production, it has been decreasing over the past few years. And also, some quality issues, some types of crudes that also head to the United States. So, Colombia is well positioned for being a substitute for those heavy sour crude oils that go to the Gulf Coast.
The thing is the main impact in prices was because of tariffs and they don't exist anymore. The thing is, to wrap it up, is that we don't know a lot about the future during Donald Trump's administration. So, things can change. But by now, it's all back to the start.
CF: So interesting. That's it for today. Thank you, João. Thank you to our listeners. Stay tuned for more Argus content on the commodity sectors in Latin America and elsewhere. See you next time.
