Published On: Wed, May 9th, 2018

Iran sanctions add to Venezuela collapse, jolting oil market

BullenbaaiWhile the world ponders the fate of Iran's exports, the oil market is exposed more than ever to the effects of Venezuela's spectacular production collapse.

The South American nation, holder of the world's biggest oil reserves, has seen output fall almost 40 percent since 2015, to 1.5 million barrels a day, amid political turmoil and an economic meltdown under President Nicolas Maduro. With global creditors eyeing Venezuelan assets and the U.S. considering more sanctions, production could drop further, to 1 million barrels daily, Societe Generale analysts said in a report last week.

The demise of OPEC's eighth largest producer, underscored recently by ConocoPhillips's push to take over its Caribbean oil assets, has helped trim a global surplus, boosting prices. At the same time, it's left less of a cushion to deal with further declines, now that the U.S. is exiting the Iran nuclear-arms deal and reimposing sanctions.

"One of the most important deadlines for oil markets was today, with the announcement the U.S. is reinstating sanctions against Iran," said Luisa Palacios, a director at Medley Global Advisors LLC. "The second most important deadline is May 20, when Venezuela holds presidential elections."
While President Donald Trump promised on Tuesday to levy tough economic penalties on Iran, it remains unclear whether European allies will comply and how oil supplies will be affected. Analysts last month said the impact on Iran's exports could range between zero and 800,000 barrels.
By contrast, output from Venezuela's state-run oil company, Petroleos de Venezuela SA, is already down some 900,000 barrels a day from its recent high in December 2015.

Meanwhile, creditors and legal opponents are circling. Earlier this week, ConocoPhillips filed orders of attachment across the Caribbean in order to fulfill an arbitration award of $2.04 billion against PDVSA. The Houston-based company seeks to take over assets, including revenues due to PDVSA, and oil and petroleum products sitting in storage tanks in Bonaire, St. Eustatius and Curaçao.

The docks in Bullen Bay, Curaçao, are unusually empty as PDVSA reroutes crude tankers away from the island amid the efforts by ConocoPhillips. Aframaxes Europride, Afra Oak, British Cygnet, ships previously set to discharge crude oil in Curaçao, were rerouted to Amuay Bay in Venezuela between May 5-6, according to ship tracking data and shipping reports, while St. Eustatius hasn't received oil from Venezuela since February

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