Refiners ask US not to block Venezuelan crude

Sanctions limiting imports of Venezuelan crude could increase US fuel prices and make domestic refiners less competitive, trade group American Fuel and Petrochemical Manufacturers told President Donald Trump's administration today.

Prohibiting some or all imports from the country may divert the crude to Asian buyers instead of cutting off purchases, AFPM chief executive Chet Thompson said in a letter addressed to Trump.

"While placing sanctions on oil imports from Venezuela would not deny a market for this internationally traded commodity, it would likely hurt consumers and businesses right here in the United States," Thompson wrote.

Foreign leaders and members of US Congress have pressed the United States for action as Venezuela teeters on government and economic collapse. But the administration, like its predecessor, has preferred non-intervention in the third-largest exporter of crude to the US.

US refiners process millions of barrels of Venezuela's heavy crude production each year, especially in the US Gulf coast. The oil giant has seen its US market share erode under a combination of rising commitments to Asia and heavy crude flows from sources US customers consider more reliable. Venezuelan imports accounted for 14pc of the average 4.3mn b/d of heavy crude US refiners imported in 2016, according to the Energy Information Administration. The country accounted for 29pc of heavy crude imports in 2003.

Citgo's 252,000 b/d refinery in Lake Charles, Louisiana, Phillips 66's 247,000 b/d refinery in Sweeny, Texas, and Chevron's 330,000 b/d refinery in Pascagoula, Mississippi, reported the largest average volumes of Venezuelan imports in 2016.

Turning away the crude would greatly reduce the limited volume state-controlled oil firm PdV can sell at full market prices. Oil-backed loan commitments to China and Russia, discounted regional supplies through Petrocaribe and local consumption claim much of Venezuela's output.

Sanctions could further tighten an already narrow spread between light and medium crude on the US Gulf coast. The regional sour benchmark Mars averaged a $3.25/bl discount to Light Louisiana Sweet (LLS) in the second quarter, down 25pc from 2016 and down by almost half compared to the five-year average. Lower exports from Opec members including Venezuela have helped to reduce that discount. Further cuts to sour exports would add pressure to the US Gulf coast's heavy refining complex.

Lost barrels could benefit Canadian exports, which steadily increase to the US as Venezuelan exports fall. Heavy crude production from Brazil or Colombia could also benefit from a halt in Venezuelan shipments to the US.

The US Treasury in May said it would review Venezuela's pledge of part of its US refining subsidiary Citgo as collateral for a $1.5bn loan from Russia's Rosneft. The US earlier this year sanctioned Venezuelan vice president Tareck El Aissami, who has broad powers in President Nicolas Maduro's government, and other individuals in Maduro's circle.

The US State Department condemned an attack on members of the Venezuelan National Assembly by armed government supporters on 5 July and criticized the government's "increasing authoritarianism." But the department lacks top policy personnel to address the country. The White House has demonstrated other priorities.