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China’s state oil and chemicals giant Sinochem has bought a rare cargo of Venezuelan crude, trade sources told Reuters on Tuesday, as Chinese state-owned firms look to acquire cheaper crudes without fear of secondary sanctions now that the U.S. has eased the restrictions on Venezuela.
The temporary U.S. sanctions relief from October 2023 to April 2024 now allows the production, lifting, sale, and exportation of oil or gas from Venezuela, and the provision of related goods and services, as well as payment of invoices for goods or services related to oil or gas sector operations in Venezuela.
As a result, the top international oil trading houses are back in the business of trading with oil from Venezuela.
Refiners willing to take advantage of the eased sanctions have arranged spot purchases of Venezuelan heavy crude, which is cheaper than international benchmarks, although the discount is not as wide as it was a few months ago when the South American country was still under sanctions.
In China, the independent refiners were the biggest customers of Venezuela’s crude before the U.S. sanctions relief. But now those refiners, the so-called ‘teapots’, are reportedly holding back fresh purchases of oil from Venezuela due to unpredictable discounts on cargoes after international majors returned to Venezuelan trades.
While independent refiners consider the implications of the sanctions relief and the narrowing discounts on their refining margins, state firms in China have started to consider buying Venezuelan crude oil now that the concern about secondary sanctions has vanished.
Sinochem has agreed to buy a cargo of 1 million barrels of Venezuela’s Merey crude for arrival this month, at a discount of $11 per barrel to dated Brent crude on a delivered ex-ship (DES) basis, according to Reuters’ trading sources with knowledge of the purchase.
Before the sanctions relief, this discount on Merey was estimated at around $20 per barrel.
Since the U.S. eased the sanctions, demand for Venezuelan crude outside China has increased. India, for example, said last week it would buy oil from Venezuela for the first such purchase since 2020.
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.