Rosneft turns to China as outlet for Venzuelan crude

Russia's state-controlled Rosneft is directing some of the supplies it receives as repayment loans to Venezuela towards China, as outlets for the US sanctions-hit crude diminish.

Rosneft has sold a May-delivery cargo of Merey to an independent refiner in China's Shandong region, with traders saying the Russian company would not turn to European buyers to dispose of excess Venezuelan supplies. Caracas is repaying a debt of roughly $2.3bn to Rosneft in crude, which the Russian firm primarily takes to its 400,000 b/d Nayara system in Vadinar, India.

The Vadinar refinery is unlikely to absorb all of Rosneft's Venezuelan receipts, leaving the company to trade the remaining crude at a time when the US sanctions against Venezuela's state-owned oil company PdV weigh on the interest of traditional buyers. India's other consumer of Venezuelan crude, Reliance, said on 13 March that it would cap its purchases of Venezuelan supplies, then later in the month stressed it had reduced purchases of Venezuelan crude to well below contracted levels. The company has already stopped shipping diluent naphtha to Venezuela.

Separately, trading firm Vitol has begun winding down its Venezuelan crude purchases and plans no future intake after the completion of existing trades. Tracking data show that the Dragon left Jose Terminal on 24 March with 2mn bl of Venezuelan crude, bound for Antwerp — likely for Vitol's ATPC facility. Market participants tell Argus that Trafigura — which previously handled Merey and Boscan volumes — is also withdrawing from trading Venezuelan crude. This was not confirmed with the parties.

China has yet to close its doors on Venezuelan purchases. It is also a recipient of Venezuelan volumes in a debt-for-oil arrangement, with the resulting supplies primarily marketed by China's state-owned PetroChina to independent refiners in Shandong. Market participants say Chinese demand could absorb Venezuelan volumes over and above PetroChina's offerings, amid uncertainty over the White House's upcoming decision on renewing waivers from Iranian sanctions after May. China took around 143,000 b/d of Venezuelan crude in February, according to Argus tracking data.

Chinese refiners are also now contending with competition for heavy crude from US buyers deprived of Caracas' oil because of the US sanctions. US refiners have set their sights on heavy grades typically favoured by China, such as Angolan cargoes — of which they are set to take at least 100,000 b/d in April — and Chadian crude Doba.

Inside Venezuela, crude production, upgrading, blending, refining and exports are almost all shut down because of a second prolonged blackout this month.