Two U.S. Gulf Coast refiners, Valero and Phillips 66, have bought cargoes of Venezuelan crude oil from trading house Vitol, two industry sources said on Wednesday. The purchases are among the first by U.S. refiners under an arrangement that allows exports of up to 50 million barrels from Caracas to be marketed to international buyers.
According to the sources, the cargoes were arranged for delivery to the U.S. Gulf Coast and were priced at about $8.50 to $9.50 a barrel below the global Brent benchmark. The sources spoke on condition of anonymity because details of the trades are confidential.
Vitol, together with rival trading house Trafigura, were the first firms to receive U.S. government licenses this month to trade Venezuelan crude after President Nicolas Maduro’s ouster in early January, the sources said. While U.S. refiners including Valero and Phillips 66 have previously taken Venezuelan crude in arrangements involving the state oil company’s partner, Chevron, these purchases represent early deals in which the newly authorized trading houses are acting as sellers to U.S. refiners.
Vitol and Trafigura acquired Venezuelan heavy oil at a wider discount to Brent, paying about $15 a barrel below the global benchmark, the sources said. U.S. Energy Secretary Chris Wright is reported to have said that initial sales of Venezuelan heavy crude worth roughly $500 million had been negotiated at the same $15 per barrel discount to Brent.
Shipping costs to move the crude to the Gulf Coast will be borne by the trading houses, and sources in the shipping sector estimated freight expenses between $2.50 and $3.50 a barrel depending on tanker size. After accounting for those shipping costs, the trading houses would retain a margin in the range of approximately $2 to $4 per barrel on the Venezuelan crude they resell.
Offers of Venezuela's flagship Merey heavy crude to U.S. refiners initially began at discounts in the $6 to $7.50 per barrel range to Brent, but those offers moved lower amid limited demand, the sources said. Vitol and Trafigura also made offers to Indian refiners at discounts of $8 to $8.50 per barrel to Brent, which similarly drew little interest.
When sanctions were in place before 2019, several large U.S. Gulf Coast refineries purchased and processed up to 800,000 barrels per day of Venezuela's heavy oil, according to U.S. government data cited by the sources. The current transactions signal an early return of Venezuelan barrels into U.S. refinery hands via newly licensed trading houses.
The trading sources declined to be identified. Valero and Vitol did not respond to requests for comment on the trades, and the White House did not reply to a request for comment. Phillips 66 provided an emailed statement on Thursday, saying that while it does not comment on commercial activity, its Gulf Coast refineries are configured to process a wide range of oil, including heavy crude. "Access to heavy crude presents a valuable opportunity for our system. We optimize our crude slate based on availability, economics, and operational needs," the company said.
Context and mechanics
The transactions involve trading houses that purchased Venezuelan heavy oil at a deeper discount to Brent before reselling cargoes to U.S. refiners at somewhat narrower discounts. The trading houses will pay for maritime transportation to the U.S. Gulf Coast, a cost that reduces the arbitrage available on each barrel but still leaves a modest margin for the traders on resold cargoes.
Market signals
Initial offers on the Merey heavy grade moved lower from earlier bid levels as buyer interest appeared limited, according to the traders. Offers to buyers in India and the United States faced similar tepid demand at the reported price points.
Reporting was based on information from industry sources and statements provided by Phillips 66; some parties did not provide comment or did not respond to requests for comment.