• 35 mins Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 18 hours Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 19 hours Oil Gains Spur Growth In Canada’s Oil Cities
  • 20 hours China To Take 5% Of Rosneft’s Output In New Deal
  • 20 hours UAE Oil Giant Seeks Partnership For Possible IPO
  • 21 hours Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 22 hours VW Fails To Secure Critical Commodity For EVs
  • 23 hours Enbridge Pipeline Expansion Finally Approved
  • 24 hours Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 1 day OPEC Oil Deal Compliance Falls To 86%
  • 2 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 2 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 2 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 2 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 2 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 2 days Aramco Says No Plans To Shelve IPO
  • 5 days Trump Passes Iran Nuclear Deal Back to Congress
  • 5 days Texas Shutters More Coal-Fired Plants
  • 5 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 5 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 5 days Chevron Quits Australian Deepwater Oil Exploration
  • 5 days Europe Braces For End Of Iran Nuclear Deal
  • 6 days Renewable Energy Startup Powering Native American Protest Camp
  • 6 days Husky Energy Set To Restart Pipeline
  • 6 days Russia, Morocco Sign String Of Energy And Military Deals
  • 6 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 6 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 6 days India Needs Help To Boost Oil Production
  • 6 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 6 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 6 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 6 days District Judge Rules Dakota Access Can Continue Operating
  • 7 days Surprise Oil Inventory Build Shocks Markets
  • 7 days France’s Biggest Listed Bank To Stop Funding Shale, Oil Sands Projects
  • 7 days Syria’s Kurds Aim To Control Oil-Rich Areas
  • 7 days Chinese Teapots Create $5B JV To Compete With State Firms
  • 7 days Oil M&A Deals Set To Rise
  • 7 days South Sudan Tightens Oil Industry Security
  • 8 days Over 1 Million Bpd Remain Offline In Gulf Of Mexico
  • 8 days Turkmenistan To Spend $93-Billion On Oil And Gas Sector
Alt Text

Is The Aramco IPO On The Brink Of Collapse?

Conflicting news suggests that Saudi…

Alt Text

Europe Stands Divided On Gazprom’s Nord Stream 2 Pipeline

Gazprom’s Nord Stream 2 megaproject…

Alt Text

Who Is Winning The Market Share War In China?

The OPEC production cut deal…

U.S. Oil Assets Could Fall Into Russian Hands If Venezuela Defaults

Venezuela Maduro

If Venezuela defaults on its debt obligations, it could result in Russia taking control over U.S. refining assets, leading to more Russian “control over oil and gas prices worldwide,” which would “inhibit U.S. energy security, and undermine broader U.S. geopolitical efforts.”

That is the warning from two members of Congress, Reps. Jeff Duncan (R-SC) and Albio Sires (D-NJ). The two Congressmen sent a joint letter to the U.S. Secretary of Treasury Steven Mnuchin, requesting his attention on the matter. A bipartisan group of six U.S. Senators also requested a response from Secretary Mnuchin on the matter.

They cite the fact that Russia’s government-backed oil company, Rosneft, gave Venezuela’s state-owned oil company, PDVSA, a $1.5 billion loan. As collateral, PDVSA offered up 49.9 percent of Citgo, a subsidiary of the Venezuelan oil company. Citgo owns three refineries in the U.S., along with pipelines and retail gas stations.

The Congressmen are worried that if PDVSA defaults, Rosneft will seize the U.S.-based refineries. “The Russian government could readily become the second-largest foreign owner of U.S. domestic refinery capacity,” which would be “to the detriment of U.S. interests,” the Congressmen wrote. “[W]e remain deeply concerned over the implications for U.S. national security.”

The concerns are rather odd. What exactly would “the Russians” do with the three refineries? The Congressmen seem to be suggesting that somehow Rosneft would conspire to restrict gasoline production to drive up prices in an effort to somehow weaken U.S. national security or the American economy. Related: Is The Oil Price Rally Running Out Of Steam?

This is silly. While Rosneft is state-owned, it is also a company that would rather not lose a ton of money. Even if Rosneft somehow gained control of Citgo’s refineries, restricting gasoline production might provide some discomfort for U.S. motorists in the region, but it would be financially ruinous to the Rosneft-controlled refineries. "The Russians can't hold the U.S. hostage," John LaForge, head of Real Assets strategy at Wells Fargo, told CNN. The three refineries are also a drop in the bucket as far as U.S. gasoline production is concerned. "Other refineries would love to pick up the slack,” LaForge added. Undoubtedly, Rosneft would rather operate the refineries just like anybody else, which is to say, selling gasoline in order to make money. Russian control of Citgo’s refineries would not threaten U.S. national security.

It is hard not to conclude that the Congressmen are engaging in a bit of bluster and Russia fear-mongering, not coincidentally at a time when U.S. Secretary of State Rex Tillerson is in Moscow and U.S.-Russian relations are deteriorating. So, there isn’t much to see here.

While this ongoing development is rather trivial to U.S. interests, the stakes could not be higher for Venezuela.

The country is in the midst of a multi-year economic meltdown, with no light at the end of the tunnel. Related: Why Breakeven Prices Are Plunging Across The Oil Industry

PDVSA has a $2.5 billion debt payment due this week, and at the time of this writing, it appears that the company will be able to meet that obligation. The state also has nearly $500 million in sovereign debt payments falling due. Cash is running out, but the Venezuelan government, for better or worse, has prioritized meeting bond payments at all costs.

The state has roughly $10 billion left in cash reserves before this week’s payment (although some of that is reportedly not in cash, but in gold), and billions more in coupon payments to meet later this year. A default this week doesn’t appear likely. But it is not a given that Venezuela makes it through 2017 without a default, a missed debt payment, or some sort of debt restructuring.

According to the credit-default swap market, investors are pegging the odds of a Venezuelan default within the next six months at 41 percent, a jump from just 34 percent in March.

And, as the two U.S. Congressmen worried about the situation wrote in their letter, the state’s and PDVSA’s assets are indeed on the line. The immediate spark to the latest political crisis was the government’s negotiations with Rosneft to offer them a stake in Venezuelan oil fields. Last month, when the Congress objected, the Supreme Court – which is controlled by the ruling party – tried to neuter the legislature. That resulted in the mass protests that are still unfolding. The Venezuelan government is desperate to sell off some oil assets in order to raise cash.

The situation in Venezuela is dire, and deserves U.S. – and global – attention. But Russian control of U.S. refineries is hardly the main story here.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • rt on April 12 2017 said:
    Hmm, I read the exact same article in yesterdays Wall Street Jrnl,almost sounds
    the same as yours, be careful.
  • bollos on April 13 2017 said:
    bbbut that's capitalism?

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News