China’s independent refineries are projected to significantly decrease their imports of Venezuelan crude oil in April due to the implementation of U.S. secondary sanctions. Some refineries have started sourcing alternative supplies, such as Canadian heavy oil, according to trade and refinery sources. It is estimated that only one Very Large Crude Carrier (VLCC) cargo of Venezuelan crude will reach China in April, a steep drop from 443,000 barrels per day (b/d) in March.
This reduction in imports follows the U.S. announcement on March 24 of an additional 25% tariff on countries importing Venezuelan oil, which took effect on April 2. Some independent refineries are adopting a cautious “watch-and-see” strategy while others have transitioned to Canadian crudes, which are more expensive due to uncertainties surrounding Venezuelan supply. Refiners have reportedly acquired Canadian Access Western Blend crude at a discount of around $2 per barrel to the ICE August Brent benchmark.
Similarly, inflows of Canadian heavy sour crude into Asia are ongoing, with Cold Lake Blend traded at a discount of approximately $1.50 per barrel to the same benchmark. Offers for June-arrival Cold Lake Blend and Access Western Blend also reflect significant discounts compared to Brent. Despite the lower prices for Venezuelan Merey crude, which was offered at discounts of around $5.30 to $5.50 per barrel in early April, refinery hesitance persists amid the new tariffs.
Venezuelan crudes are often transferred ship-to-ship in Malaysian waters, allowing for a Malaysian-origin certification before reaching China. In March, Venezuelan crude imports peaked at an 18-month high of 443,000 b/d, representing a substantial increase from previous months. The overall trend indicates that more cargoes are being declared as crude oil to bypass higher taxes imposed on imported bitumen blends.
In Venezuela, average production by state-owned PDVSA and its partners rose slightly to 1.018 million b/d in March. However, uncertainty surrounds production levels since some joint ventures lost their licenses to operate, raising concerns about future output capacity.