As Venezuela Spirals, U.S. Oil Confronts a $10 Billion Threat

[thackney]

As Venezuela Spirals, U.S. Oil Confronts a $10 Billion Threat
https://www.bloomberg.com/news/articles/2017-08-03/as-venezuela-spirals-u-s-oil-confronts-a-10-billion-threat

The tanker Paramount Helsinki docked in Pascagoula, Mississippi, last week bearing the lifeblood of Chevron Corp.’s refinery there: 532,000 barrels of thick Venezuelan oil.

Its arrival on July 23, as Venezuela’s democracy slid into what may be its final crisis, underscores the uneasy partnership that the American oil industry has entered with a nation some fear is marching toward dictatorship.

From New Jersey down to Texas, oil companies have come to depend on crude-soaked Venezuela to feed their massive refineries. Last year alone, more than 270 million barrels worth about $10 billion reached American shores -- enough to produce about 5 billion gallons of gasoline.

Now that vital flow could be stanched if, as industry leaders fear, President Donald Trump’s administration embargoes imports to pressure his Venezuelan counterpart, Nicolas Maduro. The socialist autocrat’s allies on Thursday will begin rewriting the constitution, pushing aside Venezuela’s democratic institutions. The prospect of a U.S. response that cuts off crude has been particularly unsettling for the likes of Chevron, Phillips 66 and Valero Energy Corp. which have spent billions calibrating their plants to handle Venezuela’s sludgy-but-abundant oil.

“The reason why Trump has not hit back immediately is because there are lots of constituencies," foremost among them U.S. refiners and anyone who drives, said Sandy Fielden, commodities research director at Morningstar Inc. in Chicago. “A lot of different parties will be impacted."

The U.S. on Monday froze any American assets owned by Maduro, a largely symbolic move. White House officials have prepared a menu of possible additional sanctions, but are divided over whether to restrict crude sales, according to a person familiar with the planning. The person asked not to be identified discussing internal deliberations.An embargo on oil from Venezuela, the third biggest supplier to the U.S., could force a slowdown in production at Gulf Coast refineries and at least a temporary spike in gasoline prices. That could be sensitive for Trump, who repeatedly attacked Barack Obama over prices at the pump. “Gas prices are at crazy levels--fire Obama!” he tweeted in 2012.

Refiners could turn to suppliers of heavy crude from Canada to Mexico to Iraq, but the move would ripple across global markets as other customers are shunted aside. It’s unclear how quickly alternate sources like Canada’s oil sands, most of which already go to the U.S., or Mexico, which is battling supply disruptions of its own, could fill the gap....

[thackney]

4-Week Avg U.S. Imports from Venezuela of Crude Oil
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=w_epc0_im0_nus-nve_mbbld&f=4

[thackney]

https://www.forbes.com/sites/michaellynch/2017/08/02/venezuelan-unrest-and-the-oil-market/#5d40512c34c5

...One consideration is a cutoff of U.S. exports to Venezuela (yes, we export oil to a country with the second-largest oil reserves), products that the country lacks, especially light oil, which it uses to dilute its very heavy oil. Much of this goes to a Venezuelan-owned refinery in the Caribbean rather than Venezuela itself, and certainly cutting it off would be inconvenient, but the surge in light oil from U.S. shale fields in the past few years has ensured that there should be little trouble replacing it with another source, even if Curacao winds up as part of the U.S. embargo.

The market impact of a complete cessation of Venezuelan production would be pretty marginal as well, given that there is at least 250 million barrels of oil inventory overhang in the OECD, and Venezuela supplies little more than 1 mb/d to markets (the rest is consumed domestically). While the Saudis could offset lost Venezuelan production, especially since their spare capacity is usually heavy crude that substitutes well for Venezuelan crude, they would probably not step in as they did in early 2003, when both Venezuela and Iraq saw disruptions of their industry. Instead, a Venezuelan shutdown would become a de facto part of the market rebalancing efforts that many producers are attempting. Only if a cessation is long or prices shoot up too high are the Saudis likely to act....

[Fishrrman]

Eventually, Venezuela's collapse is going to necessitate a military intervention, if only to save a sizable portion of the population from outright starvation.

The $64 question is:
WHICH country's military is going to do the job?

[Jazzhead]

I suppose that amounts could be released from the Strategic Petroleum Reserve in conjunction with an embargo of Venezuelan crude, to counter the impact on U.S. refiners and drivers.

The problem is that cutting off Venezuela's lifeblood could harm its people more than Maduro.    As Fishrrman points out,  mass starvation could be in that nation's near future,  creating a flood of refugees to neighboring countries.