Trading sources say President Donald Trump's new sanctions against Venezuela's American refining unit, Citgo, have succeeded in making it difficult for the PDVSA subsidiary to order crude for its facilities, a new Reuters report says.
Oil distributors now require Citgo to provide prepayment letters or bank letters of credit, instead of allowing the company to employ the standard practice of ordering raw supplies on open credit.
Citgo's refineries produce 750,000 barrels per day of oil, sources said. The company owns three facilities: one in Illinois, one in Texas, and one in Louisiana. Together, they represent 4 percent of American fuel capacity.
A pair of Canadian suppliers explained that their companies could not trade with Citgo directly anymore, resorting to third-party sales to avoid a credit risk. Another banker familiar with the matter put it this way:
"This is not a credit issue, nobody thinks Citgo is unwilling to pay. But banks have to protect themselves from fines, so they typically go beyond what the sanctions require."
Citgo mostly refines Venezuelan oil, but had recently resorted to buying U.S. and foreign crude due to defunct production from an economic crisis in Venezuela.
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"We are now more conservative when dealing with PDVSA or any of its units," one anonymous executive from a trading firm close to PDVSA said. "Banks that have refused to provide credit have a very rational thinking, they don't want to be exposed to sanctions. It does not take too much to have banks nervous."
Last month, when the White House first announced the sanctions, a senior official from the administration told the AP that Maduro's regime could be relieved of the sanctions if it halts its plans to rewrite the Venezuelan constitution, releases dozens of political prisoners, and negotiates fairly with its political opposition.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More
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