China’s state-owned oil company PetroChina has ordered its traders not to buy or trade Venezuelan crude after Washington took control of the OPEC producer’s oil exports this month.
The order was confirmed by two trade executives familiar with the situation.
The unit, listed under parent company China National Petroleum Corporation (CNPC), was the single largest recipient of Venezuelan oil until early 2019.
Imports were halted after U.S. President Donald Trump imposed sanctions on Venezuelan oil sales during his first term.
Venezuelan supplies to China expected to remain limited
PetroChina’s decision to wait and not make purchases reflects expectations that Venezuelan oil flows to China, its biggest customer, will remain limited. This has prompted Chinese buyers to turn to alternative sources including Canada, Iran and Russia.
PetroChina, a major investor in Venezuela’s oil sector through its Sinovensa joint venture with state oil company PDVSA, has not made any official comment on the matter.
China, the world's largest oil importer, has criticized Washington's move to shift Venezuelan oil exports to the United States and away from Beijing.
Uncompetitive Prices Hurt Buyers
In addition to concerns about U.S. controls, Venezuelan oil prices are seen as no longer competitive with other grades such as Canadian crude. The discount on Venezuelan heavy crude, Merey, shipped to China has narrowed by about $10 per barrel since December.
Vitol is offering Venezuelan oil to Chinese buyers at a discount of about $5 per barrel to the ICE Brent benchmark for April delivery. The offer is far lower than the discount of about $15 per barrel offered in December before U.S. sanctions took effect.
Oil Debt Issue Adds Uncertainty
PetroChina is also assessing the potential impact on oil imports under the oil debt program between Venezuela and China. Caracas has previously used the crude to repay billions of dollars in loans to Beijing.
The diversion of Venezuelan crude to the United States is expected to force a reordering of cargoes originally destined for China. Analysts and traders expect China's crude imports from Venezuela to decline further from February.
Although China is the largest buyer of Venezuelan oil, its supplies account for only about four percent of the country's total oil imports, most of which are purchased by small-scale independent refiners.
