According to a report seen by S&P Global Platts, production of Orinoco blend crude has been shut in at three upgraders operated by PDVSA and its partners: the 190,000 b/d Petropiar upgrader with
, the 120,000 b/d Petromonagas with
and the 202,000 b/d Petrocedeno with
. PDVSA’s wholly owned 120,000 b/d Petro San Felix upgrader is out of service indefinitely.
Sanctions imposed on the Nicolas Maduro regime by the Trump Administration have dramatically reduced export tanker traffic to the strife-ridden nation. The sanctions essentially ban exports of Venezuelan imports into the U.S. by requiring that any funds derived from such transactions be deposited into reserve accounts from which the funds will ultimately be transferred to a new government once Maduro has eventually been removed from power. The U.S. government, along with about 50 other countries, recognizes Venezuela opposition leader Juan Guaido as the country’s legitimate Interim President.
May 1 also marked the end of a three-month period companies doing business with Venezuela were given on February 1 by the U.S. Treasury Department to wind down transactions with PDVSA, Venezuela’s national oil company, that involved the U.S. financial system. In response to the country’s worsening domestic situation, the U.S. government announced on Wednesday that it was suspending all passenger and cargo flights to Venezuela.
Venezuela, home to some of the world’s most-prolific crude reserves, had been the exporter of about 2 million barrels of oil per day (bopd) as recently as 2015. But internal conflicts and strife caused by the collapse of Maduro’s socialist economy have led to a dramatic drop in production and exports since that time. The country averaged about 780,000 bopd in April, but S&P Platts quotes one field operator there as predicting that production levels will fall to less than 500,000 bopd for May under an “optimistic scenario.”
The news of the collapse in Venezuelan exports comes simultaneously with escalating tensions in the Middle East after two Saudi Arabian crude tankers, along with two others, were apparently damaged by explosive devices near the strategic Strait of Hormuz over the weekend, and Yemeni rebels took credit for attacks on Saudi pipeline assets on Tuesday. The U.S. government responded to these events on Wednesday by ordering all non-essential personnel to leave Iran, and both Germany and the Netherlands suspended certain operations within that country.
Of course, earlier in May, President Donald Trump ordered the the Nimitz-class aircraft carrier USS Abraham Lincoln, along with four B-52 bombers, to deploy to the Persian Gulf. That move came in response to the Iranian government’s announcement that it will back away from its commitment under the 2015 nuclear arms agreement, and threats that it may begin enriching uranium at its nuclear facilities..
The escalating international tensions have placed significant upward pressure on crude prices. West Texas Intermediate reached the $63 mark Thursday morning after opening the week just below $61. The Brent price had also risen by more than $2/bbl for the week.
The market jitters created by these international events out-weighed the bullish news from the U.S. Energy Information Administration (EIA) late Wednesday that U.S. crude inventories had risen to their highest levels since 2017 during the week ending May 10. The 5.4 million barrel increase for the week came despite analysts’ anticipations that they would actually decline slightly.
So, the “fear premium” is making a comeback and being baked back into crude prices after the previous 18 months or so of relative absence. The premium is fairly modest thus far, but how high it will rise and how long it might last is impossible to project.