Venezuela sanctions nix another US naphtha outlet

US Gulf coast naphtha sellers looked to Asian markets to absorb production abruptly blocked this week by US sanctions against Venezuela.

An immediate ban on diluent sales to Venezuela and its national oil company, PdV, removed the buyer of roughly 18pc of total US exports of unfinished oil, including naphtha, tracked by the US Energy Information Administration. Sanctions against diluent exports may strangle Venezuelan crude production that has increasingly relied on US naphtha to produce synthetic and diluted heavy crude shipped to US Gulf coast refiners.

The sanctions also left a well-supplied US naphtha market seeking to send additional volumes to Asia, where it is used as a petrochemical feedstock, and to Latin America, where buyers may process it into gasoline. Suppliers remained optimistic that the shake up in trade flows would leave openings for US production.

"We can fill the holes the other people left," one trader said.

The US on 28 January imposed sanctions immediately halting diluent exports to Venezuela and shifting oil assets — including payments to PdV — into escrow accounts until a new, democratically elected government takes control of Venezuela's central bank. The US, Canada and most of Latin America recognize national assembly leader Juan Guaidó as the legitimate interim president of Venezuela.

Titular Venezuelan president Nicolas Maduro has said he will talk with the opposition but insisted he will continue to lead the country.

Sanctions immediately redirect 50,000 b/d to 100,000 b/d of US naphtha exports that have formed a critical component of Venezuela's diluted crude oil (DCO) and other blends. Venezuelan exports of DCO rose to almost 400,000 b/d late last year because of operational problems with upgraders. Moving 650,000 b/d of DCO requires about 50,000 b/d of imported naphtha supplementing Venezuelan domestic supply.

Asian buyers have aggregated supplies for previous export to Venezuela. US suppliers said they would seek to export more to Japan, Korea and Taiwan (JKT), where naphtha provides steam cracking feedstock. Demand there has kept US naphtha prices relatively high despite the sanctions.

Chinese counter-tariffs that began last year had turned away US naphtha suppliers in favor of European and Russian sources. US shippers expected Venezuelan demand to cause a similar shift, leaving opportunities outside of China for US production.