Background on Key Players and Relevance
Nicolás Maduro, the embattled president of Venezuela, has faced mounting pressure from the United States and other countries. Following a U.S.-led initiative, Maduro’s legitimacy was questioned, leading to the recognition of opposition leader Juan Guaidó as the interim president. This political turmoil has had significant repercussions on Venezuela’s oil exports, which have been crucial for both the country’s economy and China’s energy supply.
China, being the world’s largest importer of crude oil, has relied heavily on discounted oil from sanctioned countries such as Russia, Iran, and Venezuela. These “teapot” refineries, as they are known, process cheaper, heavier crude oil into valuable petroleum products.
Impact on Chinese Refineries
With Venezuelan oil shipments stalled since the U.S. move against Maduro, Chinese independent refineries are reportedly considering switching to heavier crude from sources like Iran, according to traders and analysts.
- Reduced Venezuelan Supply: The agreement between Caracas and Washington to export up to $2 billion worth of Venezuelan crude to the U.S. is expected to decrease Venezuela’s supply to China, affecting the “teapot” refineries’ access to affordable heavy crude.
- Abundant Russian and Iranian Supply: Analysts like June Goh from Sparta Commodities suggest that the availability of cheap Russian and Iranian crude will likely prevent “teapot” refineries from bidding on non-sanctioned barrels, as the economic rationale may not make sense.
In 2019, China imported around 389,000 barrels per day of Venezuelan crude, accounting for roughly 4% of its total maritime crude imports. However, shipments for Asia from Venezuelan ports have ceased since January 1st, according to maritime transportation data.
Alternative Sources for Chinese Refineries
As Venezuelan crude becomes less accessible, Chinese refineries are expected to transition to Russian and Iranian supplies in March and April. Other potential sources, such as Canada, Brazil, Iraq, and Colombia, remain unsanctioned and could be considered alternatives.
- Iranian Crude at a Discount: With Iranian heavy crude available at approximately $10 per barrel less than the Brent ICE benchmark, it presents itself as a more economical option for Chinese refineries.
- Canadian Crude Discounts: Meanwhile, discounts for Canadian crude grades like Cold Lake and Access Western Blend have risen by over $2 per barrel relative to ICE Brent for April delivery in China, anticipating lower U.S. demand.
Key Questions and Answers
- Q: What is the main reason for Chinese refineries to switch from Venezuelan oil? A: The U.S. move against Venezuelan president Nicolás Maduro has disrupted oil shipments to China, prompting refineries to seek alternatives like Iranian crude.
- Q: How much of China’s crude imports come from Venezuela? A: In 2019, China imported around 389,000 barrels per day of Venezuelan crude, which accounted for approximately 4% of its total maritime crude imports.
- Q: What are the alternative sources for Chinese refineries? A: Chinese refineries are expected to transition to Russian and Iranian supplies, as well as consider unsanctioned sources like Canada, Brazil, Iraq, and Colombia.
- Q: Why is Iranian crude a more attractive option for Chinese refineries? A: Iranian heavy crude is available at a discount of around $10 per barrel compared to the Brent ICE benchmark, making it a more economical choice.
- Q: How have Canadian crude discounts changed recently? A: Discounts for Canadian crude grades like Cold Lake and Access Western Blend have increased by over $2 per barrel relative to ICE Brent for April delivery in China, anticipating lower U.S. demand.
