"Sanctions already have a detrimental effect on oil supplies," wrote Ryan Fitzmaurice, energy strategist at Rabobank, to clients in a report last week.
Heavy crude oil is usually cheaper than light crude oil, but the demand for it has become so intense that it suddenly trades with a premium to lighter barrels. US Gulf Coast refineries, led by Citgo, Chevron and Valero, blend heavy crude oil with light barrels found in US oil change oil fields to get rid of gasoline, diesel, and jet fuel.
In Venezuelan government, relying on oil exports for 90% of sales, he is looking for other crude oil customers. Venezuela's oil minister Manuel Quevedo traveled to India last week in a clear bid to drum up support.
"They encrypt to find buyers for the crude," said Matt Smith, director of commodity research at ClipperData.
Double-whammy for Venezuela
The country's oil industry, the main source of revenue, is in a sharp decline. Venezuelan oil production fell from 2.4 million barrels a day in 2015 to just 1.34 million by the end of 2018, according to research firm Rystad Energy.
"This case is clearly transferable to 2019," writes Rystad analysts in a recent report.
US sanctions are a double-whammy for Venezuela.
Not only was America's Venezuela No. 1 customer, but it was the country's main source of naphtha, the liquid hydrocarbon mixture was used to dilute crude oil. Without it, Venezuela's heavy crude oil cannot be easily transported. Rystad Energy estimates that some operators in Venezuela will run out of diluent by March.
US oil prices are rising almost 5% since the sanctions were announced. Brent's worldwide benchmark index is up 8%. But analysts do not believe Venezuela is the main reason for starting up crude oil. Instead, they point to OPEC's deeper than expected production cuts, turmoil in Libya and the boom effect in global financial markets that fear the setback risk.
"The rally has been driven mainly by OPEC plus cuts," said Artyom Tchen, Venezuela expert at Rystad Energy. "Most of the Venezuelan risk had already been priced a long time ago."
Saudi Arabia, another major source of heavy crude oil, has been particularly aggressive in slashing shipments to the United States. Analysts say that is because the US's transparent and timely data makes these cuts immediately clear for oil stocks.
"That's where they get the most bang for the money," Smith said.
& # 39; Contingency Planning & # 39;
American Gulf Coast Refiners are trying to find ways to replace Venezuela's barrels. Earlier this month, Chevron ( CEO Mike Wirth said the company activated "contingency planning" to maintain supply at its refinery Pascagoula, Mississippi, which ran in average of 70,000 barrels per day of crude from Venezuela. )
"We're working actively to ensure we continue to deliver top-quality fuels and lubricants to our US customers," Chevron said in a statement to CNN Business.
"We are absolutely hopeful that we will see a quick solution to the crisis, not only for the benefit of the crude market but for Venezuela's welfare," said Gary Simmons, senior vice president of supply and international operations, analysts said on January 31.
Western oil companies that cooperate with PDVA have been caught in the middle.
Chevron said the business in Venezuela is continuing, and the company is "committed to the country's energy development in accordance with all applicable laws and regulations."
Venezuela is a free fall to continue
The oil business is bracing for the historic collapse of Venezuela's oil production to dive because of the crisis and US sanctions.
"Maduro does not seem to go without a fight – sets the stage for a long-lasting power struggle that is likely to lead to sustained production declines if history is any guidance," Fitzmaurice said. "We remain highly judged that prices are undervalued given today's uncertainty about uncertainty."
Rystad Energy expects that Venezuela's oil production will fall from 1.34 million barrels per day in 2018 to just 1 million barrels this year and 890,000 barrels by 2020. If Venezuela cannot compensate for the impact of US sanctions and secure new funding, production can shift to 680,000 barrels a day by 2020, Rystad says.
It's a wonderful decline given that Venezuela has more proven oil reserves than any other nation on the planet.