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Venezuela Oil Sanctions Slash Brent Crude Premium

The U.S. sanctions on Venezuela from late last month cut off more heavy and sour crude oil supply to the global market, leading to the lowest premium of quality light sweet Brent over heavier and sour crude grades because of limited heavy oil supply worldwide.

At times when supply of various crude grades is not distorted, Brent usually trades at a premium of $3-$4 a barrel over Dubai, but since January, the premium of Brent over Dubai has been consistently below $1 a barrel, Eesha Muneeb, pricing specialist for the Dubai crude oil benchmark at S&P Global Platts, writes.

To top off the sanctions on Iran and the OPEC cuts, the U.S. sanctions on Venezuela at the end of January further tightened the heavy crude market, and traders expect the market to tighten even more in the coming months.

Despite initial expectations that the Venezuelan oil that would have gone to the U.S. could easily make way to Asia, the nature of the U.S. sanctions have effectively turned the U.S. import ban into financial sanctions applicable globally, a Singapore-based crude trader told Platts’ Muneeb.

In the middle of February, the April Brent premium to Dubai Exchange Futures for Swaps (EFS)—generally seen as the spot market sentiment of Brent-linked and Dubai-linked crude grades—fell to the lowest on record, since S&P Global Platts started publishing data about the spread in August 2011.

Related: Why Oil Tanker Rates Just Doubled

The sanctions on Venezuela and on Iran, as well as OPEC’s cuts, have led to a huge imbalance between light sweet grades and heavy sour grades, especially in Europe, as Middle Eastern and other oil producers are targeting to keep their sales on the Asian market.

Due to tighter supply of medium and heavy sour crude oil, Middle Eastern benchmarks for sour crude grades traded higher than Brent Crude prices at the beginning of February in a rarely seen development in global oil prices.

In Europe, some sour crude grades, such as Russia’s Urals, have started to trade at premiums to sweeter crudes because of the limited sour and heavy crude availability, according to S&P Global Platts data.


By Tsvetana Paraskova for Oilprice.com

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  • Mitch Farney on February 26 2019 said:
    In a way, I'm surprised the Saudi's and other light grade producers arent trying to flood the US in it. Surely that would really bring the dollars recieved by shale companies way down. Not sure what the US government would do... but trump wants low oil. Dems hate oil producers.

    Medium term if this remains, it may make it more profitable to use battery production capacity for diesel/jet engine displacement. As we will continue swimming in gasoline from the light crude refining. And a lack of middle distillates increasing those prices

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