The refineries in Texas and Louisiana will be severely affected by the Venezuelan oil sanctions the White House is considering – a move that would force US oil companies to find alternative supplies.
President Donald Trump has recognized Juan Guaydo as Venezuelan interim president on Wednesday, the most provocative measure so far against the left regime of Nicholas Maduro. Maduro, in turn, responded with the collapse of diplomatic relations with the United States and gave US diplomats 72 hours to leave the country.
The Trump administration has drawn up a list of sanctions, but has not decided whether to implement them, people familiar with the matter said. Earlier this month, representatives of the White House warned US refineries that they are considering sanctions and advising them to look for alternative sources of heavy raw material. Some US refineries, concerned about sanctions, experimented with alternatives last year before buying Venezuelan crude oil.
The most affected will be Citgo Petroleum Corp., the refining group of Petról eos de Venezuela SA, or PDVSA, the state oil company. Citgo is the largest importer of Venezuelan crude oil in the first 10 months of 2018, followed by Valero Energy Corp.,
Royal Dutch Shell Plc and Phillips 66 have not processed Venezuelan oil in their US refineries after the US imposed financial sanctions against the country and PDVSA in August 2017. Marathon Petroleum Corp., Total SA and Motiva Enterprises LLC cut crude oil in the country . Venezuela in more than half during this period, as Venezuelan production fell to the lowest levels observed since the 1940s.
Oil companies urged Trump's administration not to limit imports of Venezuelan oil, warning that the measure could harm the refineries in the Gulf and the East Coast, which are destined to process the heavy oil of the Latin American country. This will also lead to rising gas prices, they said.
Sanctions for Venezuelan imports would worsen the shortage of heavy sulfur oil, preferred by Gulf refineries, which is usually sold at a lower price for higher quality raw materials. Prices are rising as OPEC and its allies have cut supplies, and Canadian province of Alberta has forced manufacturers to do the same to curb global and regional oversupply.
There are no easy alternatives. Mexico, whose production has plunged into a prolonged decline, has already increased its supply to the United States and surpassed Venezuela last year as a major supplier in the region. Also, Ecuadorian and Colombian crude oil are often transported to the western coast of the United States by crossing US refineries against each other for supplies.
Reporters reported to the White House and Capitol Hill accusations that a unilateral ban on raw materials would harm US refiners without contributing to US policy goals in Venezuela because India, Russia and China will continue to buy US oil. according to two people familiar with the conversations.
Profit margins for turning heavy raw materials into gasoline and diesel have fallen to the lowest level for more than a year. If refiners can not find affordable prices for Venezuelan oil, they may be forced to cut their production prices, according to a person familiar with the matter. This could lead to rising fuel prices, something the President of the United States was particularly sensitive to.