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A Chinese defense firm has been shipping Venezuelan oil to China since 2020, Reuters has reported, citing unnamed sources, replacing state oil major PetroChina.
China Aerospace Science and Industry Corp, or CASIC, has been using three tankers to transport Venezuelan crude to a tank farm it took over from PetroChina. The Chinese state reduces outstanding Venezuelan debt instead of paying for the deliveries, the Reuters sources said.
So far, CASIC has shipped oil totaling 25 million barrels worth some $1.5 billion under the formula used for pricing Venezuela's flagship Merey crude. The amount is equal to a daily export rate of 42,000 barrels.
"These shipments are strictly under a government mandate, where CASIC was designated to move the oil as payment to offset Venezuelan debt (to China)," one of the Reuters sources said.
"All money from proceeds stays in China. Venezuela's foreign affairs ministry is in charge of conciliation and accountability," another source told Reuters.
China has been Venezuela's biggest oil buyer since U.S. sanctions on Caracas were tightened in 2019, even though Chinese state oil firms ostensibly cut their trade ties with PDVSA.
Sanctions, coupled with years of underinvestment and mismanagement, have decimated Venezuela's oil production, with the latest data, for July showing an average daily production rate of 629,000 barrels.
The government in Caracas, however, still expects to boost this to 2 million bpd by the end of the year and further to 3 million bpd in 2023. The last time Venezuela produced 3 million bpd of crude was in 1997. Over the next 20 years, production averaged 2 million bpd.
China, meanwhile, has benefited from discount prices for not just Venezuelan but also Iranian and, lately, Russian crude amid a sanction push aimed at decimating the oil exports of these nations.
In a recent column, Reuters' Clyde Russell argued that these purchases by the world's top oil importer had prevented an even tighter global oil supply situation and higher oil prices.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com