With Jacob Blanc

The United States military recently carried out a covert operation to capture and then remove Venezuelan President Nicolás Maduro and his wife, transporting them from Caracas to New York. The pair is accused of narco-terrorism, conspiracy, drug trafficking and money laundering.

President Donald Trump announced that the U.S. will temporarily “run” Venezuela until a “safe, proper and judicious transition” can be ensured. Trump also announced Venezeula was handing over up to 50 million barrels of oil to the U.S. to be sold at “market price.”

Read more: A predawn op in Latin America? The US has been here before, but the seizure of Venezuela’s Maduro is still unprecedented

There’s nothing new about the American desire to put an end to the Maduro regime. In March 2020, during Trump’s first term, Maduro was indicted by the U.S. on narco-terrorism and cocaine trafficking charges. A reward of US$15 million was offered for his arrest. But the U.S. had been increasing pressure on Venezuela for months through both military and diplomatic tactics.

Nor is it the first time that the U.S. has intervened militarily in Latin America. It happened in Grenada and Panama in 1983 and in Honduras in 1988.

But an intervention of this magnitude in a large South American country is unprecedented. Jacob Blanc, a Latin American specialist and professor in the history department at McGill University, explains.

The Conversation Canada: Were you surprised by the American intervention in Caracas?

Jacob Blanc: Yes, I was, especially because of how audacious it was. There is a long history of American interventions in Latin America, but in the larger countries these have generally been carried out in a more subtle way. The United States has supported regime changes when they are perceived as pro-Communist or anti-American. But this case — a military intervention in the middle of the night at the presidential palace and the abduction of the leader of a modern country — is unusual. What’s more, Trump is not touching the political system. He is leaving the regime in place, with Vice-President Delcy Rodriguez as interim president. This is unprecedented.

TCC: What kind of relationship did the United States have with Venezuela?

J.B.: Venezuela is particularly important to Americans because it was the country where one of the first independence movements against the Spanish took place. This was where the colonial wars took root, and where [military and political leader] Simón Bolívar proposed unifying the South American hemisphere in a confederation. Bolivar’s plan did not succeed, but Venezuela was at the forefront of this movement. Then, in the 20th century, oil was discovered in several countries in northern South America, including Venezuela — which has the largest reserves in the world — and Colombia. The economy benefited, but this also created regional problems.

The region became more important to the Americans in the 1990s with the instability in the Middle East. With the rise to power of Hugo Chávez, [president from 1999 until his death], and his left-wing ideas, relations cooled. Chávez became the bête noire of the Americans, who accused him of corruption, among other things.

An oil embargo was imposed in 2019, which considerably weakened the oil sector. Under Hugo Chavez, the oil sector was already slowing down, mainly due to corruption. It will take years and a lot of money for the Americans to get it back on track, but the Americans themselves created part of the problem with the embargo.

TCC: How do other South American countries view this intervention?

J.B.: It depends on their ideology. Brazil, Mexico and Colombia, which are more left-wing, have denounced the intervention, but Argentina and Chile have supported it. In my opinion, this will accentuate the divide between the two ideologies present in South America, but this situation is not really new. For Cuba, the threat is real. But an American intervention on the island would be purely ideological, as the country has almost nothing to offer. It would be a trophy for Trump to show off.

TCC: Trump’s bellicose rhetoric against Colombia is surprising, given that the country is a democracy. How should we interpret this?

J.B.: Yes, it surprises me a little. But at the same time, it makes sense: the official justification for the intervention against Venezuela is the illegal entry of drugs into the United States. But Venezuela is a small player. Colombia, on the other hand, is a very large exporter. So if the justification is true, that makes it all the easier to do the same thing in Colombia.

TCC: What message is Trump sending to the rest of the world?

J.B.: Trump’s actions are reminiscent of what Putin is doing in Ukraine, and what Xi Jinping could do in Taiwan or other neighbouring countries. This jeopardizes the international rules that nations established after the Second World War, when they set up a system — which might be weak, but it’s still a system — to prevent wars.

Read more: Venezuela attack, Greenland threats and Gaza assault mark the collapse of international legal order

TCC: What does the future hold for Venezuela?

J.B.: It will all depend on the type of administration Trump supports. For now, he is not changing the regime or the system and says he wants to manage it from a distance, through various incentives. I believe the Trump administration is crossing its fingers and hoping that the new presidency will not implode due to internal factions. We can expect infighting within the current government, as well as with the military.

Many want power. Donald Trump wants to have his cake and eat it too. He wants to make the operation look like a victory without any risks or costs; without sending soldiers who could lose their lives. But nothing is less certain. And if chaos spreads in the region, particularly in Colombia, it will be Trump’s fault. He has taken a very, very risky gamble.

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By Jake Bittle

Shortly after launching a dramatic raid in which U.S. forces abducted Venezuelan leader Nicolás Maduro on Saturday, President Donald Trump justified the action with a promise to revive Venezuela’s moribund oil industry. The country has by far the largest claimed reserves of crude oil in the world, accounting for almost a fifth of the planet’s remaining known crude oil, but its production has plummeted under Maduro, who has ruled the country since 2013.

“We’re going to have our very large United States oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country,” Trump said during a press conference at Mar-a-Lago in which he announced Maduro’s capture.

This intervention comes at a pivotal moment for the global oil industry, which continues to stare down the prospect of a broad transition to renewable energy. For this reason, it’s not obvious that future markets can justify a surge of investment in Venezuela. On one hand, the country’s extra-heavy crude oil is perfect for diesel and jet fuel, which are helpful in hard-to-decarbonize industries. This makes it less threatened by the meteoric rise of electric vehicles displacing gasoline-powered cars. On the other hand, the world is already experiencing an overall glut of oil, and analysts expect demand to peak in the next decade. While there are buyers for additional oil that could be pumped in Venezuela — some of them on the U.S. Gulf Coast — experts say a total revival on the order that Trump is promising may not be in the cards.

“There’s a guaranteed market for it, but a market that has its limitations in size,” said Antoine Halff, the founder of the climate and data analysis firm Kayrros and a nonresident fellow at Columbia University’s Center on Global Energy Policy.

As electric vehicles and renewable energy continue to expand, the world appears to be approaching a peak in oil demand. While the exact timing of that peak is disputed — it could happen within four years or in more than 15 years — almost all analysts agree that it is coming. At that point, there may no longer be sufficient demand to keep exploiting new oil fields, no matter how large. And given that it will take many years just to update the infrastructure that will allow for increased oil production in Venezuela in the first place, investors may decide that the juice is not worth the squeeze.

Then there’s the matter of predicting future prices in a notoriously volatile industry. Oil companies only make a profit when global oil prices stay above a certain level. For the U.S. companies that produce oil from Texas shale, for example, that number is around $60 a barrel, which is close to the current benchmark price. For Saudi Arabia, it’s closer to $90 a barrel, because oil revenues back almost all the kingdom’s government spending. In the newest oil fields, such as those offshore of Guyana, it’s as low as $30. There are already concerns that an oversupply of oil worldwide could send prices tumbling over the next year, making new fields less palatable to investors. If demand plateaus, a surge of Venezuelan crude would push prices even further down. Since Venezuela is a member of OPEC, it would have to coordinate production along with Saudi and other major producers, who would likely prevent Venezuela from flooding the market.

Even so, there will likely be long-term demand for the specific kind of oil that Venezuela produces. That’s because any energy transition will not happen at equal speed across all parts of the transportation sector. The expansion of electric vehicles will first replace passenger cars and mopeds, which rely on lighter oil from fields like those of the Texas shale. Larger vehicles like airplanes and heavy-duty trucks are harder to replace — they need more power than EV batteries can feasibly provide at present — and they rely on heavy oil like Venezuela’s. A report from the oil trading firm Vitol found that “the initial pace of decline [for diesel] is expected to be slow compared to gasoline, but begins to gather pace from 2035 onwards.” Few other countries boast the same kind of extra-heavy reserves that Venezuela has, and those that do, like Canada, have much higher production costs.

“These are the hard-to-abate segments,” said Halff. “It’s the part of oil demand that looks like it’s not going to shrink quickly.”

Venezuela pumped more than 3 million barrels of oil per day at the turn of the century, but production totals have plummeted since then. After the government of Hugo Chávez nationalized major oil infrastructure in 2007, the United States imposed financial sanctions that forced Venezuela to sell its oil at steep discounts. Under the Maduro government, the state-owned oil company racked up debts and saw an exodus of skilled workers. Pumps and pipelines decayed out of service, storage tanks collapsed, and production bottomed out at around 500,000 barrels per day during the COVID-19 pandemic.

President Trump has promised that his aggressive raid on Venezuela will lead to a revival of this industry, and he has reportedly urged U.S. oil producers to aid him in the effort. In remarks following the Maduro raid, he promised that American companies would return to Venezuela and help export oil to other countries. Given how inefficient the state-run oil sector has become, analysts believe it would be easy to restore some production in the short term with outside investment and sanctions relief.

“Our assumption is that there are a lot of wells that just need a workover,” said Adrian Lara, the lead analyst for the Latin American oil industry at the research firm Wood Mackenzie, in a brief published last month before Maduro’s capture. “You can boost production through opex [operational expenditure], without needing much new capex [capital expenditure]” — in other words, a tune-up rather than a full surge of new investment.

In the short term, there is ample demand. The oil in the country’s vast Orinoco Belt is very heavy and viscous, like molasses, in contrast to U.S. shale oil, which is about as thin as vinegar. This makes it more expensive and more carbon-intensive to produce, but also makes it well suited for conversion into diesel fuel in trucks and for other uses like asphalt. There are several refineries along the Gulf Coast that were built to process this kind of heavy crude, and these refineries are operating below capacity. Right now, Venezuela exports most of its oil to China, which would also likely purchase more for its own refineries. An industry expert who spoke to The Wall Street Journal said access to those reserves could be a “game changer” in terms of increasing Gulf Coast refiners’ profits.

“Right now there’s plenty of appetite for heavy crude globally,” said Robert Auers, a refined fuels market analyst at the energy consultancy RBN Energy. “Even if Venezuelan production were to come back real strong, the global market could easily absorb that.”

But a grand revival like the one Trump has promised would be a much taller order, given that it would take decades to unfold. The energy analysis firm Rystad Energy projects that a return to pre-Maduro levels would require an investment of $110 billion, and these investments would not bear fruit for a decade or more. Even Chevron, the only U.S. oil producer that operates in the country, would need to invest an estimated $7 billion in order to add another 500,000 barrels, according to a former executive who spoke with The New York Times.

The climate pollution stemming from this crude might also play a factor in its market appeal. Right now, the heavy oil extraction in the Orinoco Belt is some of the most carbon-intensive in the world, in part because enormous amounts of methane are flared during the process. As governments continue to pursue Paris Agreement targets, however fitfully, they might shy away from such fields wherever possible and instead import lower-carbon barrels. (The European Union has already committed to do this.) Many experts believe that oil majors will hesitate before taking the plunge on a resource that is far tougher to handle than the crude in U.S. shale fields or the Middle East.

That’s all in addition to the political uncertainty that has followed Trump’s attempt to depose Maduro. It remains unclear what shape the new government of Venezuela will take. Given that other producers like Exxon Mobil lost billions of dollars when the Chávez government nationalized their assets, it’s far from obvious that these oil companies would want to invest under continued political instability. Past U.S. interventions have demonstrated similar dynamics: Oil production in Libya has still not recovered since the fall of Muammar Gaddafi in 2011, and it took almost a decade for Iraqi oil production to rebound after the U.S. invaded in 2003.

“I do not believe in a significant increase in the short term,” said Rudolf Elias, chair of the supervisory board of Staatsolie, the state oil company of Suriname, which is pursuing an offshore oil project in the waters east of Venezuela. “It will take years before the industry is revived … then it is dirty oil, and heavy, so it will not be first in the row.”

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By Erik Kreil, Sean Hill

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) effectively lifted most U.S. sanctions on Venezuela’s energy sector on October 18 for six months, paving the way for additional exports of the heavy, sour crude oil the country produces. That type of crude oil has been in short supply and has had significant price increases in recent months. Still, years of underinvestment and mismanagement of Venezuela’s energy sector will likely limit crude oil production growth to less than 200,000 barrels per day (b/d) by the end of 2024, requiring more time and investment for additional growth.

U.S. crude oil imports from Venezuela stopped shortly after January 2019 when the United States imposed sanctions on state oil company Petróleos de Venezuela SA (PdVSA). The United States eased those sanctions in November 2022 when OFAC granted waivers to Chevron so it could resume exporting crude oil from its joint venture operations in Venezuela to U.S. Gulf Coast refineries, which restarted in January 2023.

Refineries on the U.S. Gulf Coast are well-suited to take the kind of heavy crude oil Venezuela produces. PdVSA’s subsidiary in the United States, Citgo, has three refineries—Lemont, Lake Charles, and Corpus Christi—which have a combined capacity of over 800,000 b/d and are designed to process heavy oil. These assets will change ownership as the result of a scheduled sale of Citgo’s assets to satisfy creditor claims against Venezuela and PdVSA.

Venezuela’s crude oil production has fallen from about 3.2 million b/d in 2000 to 735,000 b/d in September 2023, making it the 10th-largest producer in OPEC despite its significant oil reserves. U.S. crude oil imports from Venezuela similarly declined, falling from 1.3 million b/d in 2001 to about 510,000 b/d in 2018. Imports halted in 2019 for four years before resuming under limited sanctions relief in January 2023 and increasing to 153,000 b/d in July 2023.

Venezuela’s crude oil production in September declined from the recent high of 790,000 b/d in July 2023. Shortages of diluent, which is necessary to process Venezuela’s heavy oil, reduced output. The lifting of sanctions will allow for increased diluent imports, which could boost production slightly. We expect the bulk of near-term production growth to come from Chevron’s joint ventures. The earlier exemption for Chevron led its share of production to increase to 135,000 b/d in 2023, and we expect Chevron’s output in Venezuela to increase to 200,000 b/d by the end of 2024.

Ventures operated by ENI, Repsol, and Maurel & Prom could increase production by an additional 50,000 b/d in the near term, according to IPD Latin America. As a result, we asses that these ventures could raise Venezuela’s total output to about 900,000 b/d by the end of 2024.

Further increases in Venezuela’s crude oil production will take longer. Much of Venezuela’s crude oil production capacity and infrastructure has suffered from prolonged lack of access to capital and regular maintenance The potential for further growth remains highly uncertain at this time because significant new investment would be required for additional production.

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US oil prices up over 1 per cent

Oil prices rose on Wednesday after data from the US Energy Information Administration showed crude stockpiles in the US grew less than expected and market concerns grew about crude supply in the wake of the imposition of US sanctions on Venezuela’s oil industry.

By 2:44 p.m., EST, US crude futures had climbed 96 cents to $54.27/barrel, a 1.8 per cent gain.  Brent crude futures rose 31 cents to $61.51/barrel.

According to the US EIA, crude oil inventories rose by 919,000 barrels last week, less than anticipated due to a decline in imports.  Analysts polled prior to the release of the data expected US crude stocks to grow by 3.2 million barrels.

Gasoline inventories dropped by 2.2 million barrels from record highs as refiners slowed down their production.  Analysts had predicted an increase of 1.9 million barrels when polled by Reuters before the release of the EIA data.

“Because we had a huge drop in gasoline inventories, that gave a bullish tint to the entire report,” Phil Flynn, an analyst at Price Futures Group told Reuters.

Oil prices have been buoyed by the Trump administration’s announcement on Monday that it is imposing export sanctions on Venezuelan crude.  The sanctions are meant to freeze PDVSA’s approximately 500,000 barrels per day in crude exports.

Under the sanctions, United States companies can purchase Venezuelan crude, but the cash would be put into a “blocked account”.   Such an arrangement means PDVSA will likely look for other crude buyers.

The US sanctions are aimed at driving President Nicolas Maduro from power.  Maduro’s government has been at the helm during the country’s economic collapse and social crisis that has forced millions of Venezuelans to flee their country.

The United States and a number of its allies are calling the country’s most recent election fraudulent.

Meanwhile traders who sell Venezuelan crude to the US are looking for new buyers, according to Reuters’ sources.  US refiners are also looking for other sources of heavy crude.

Despite the sanctions, Carsten Menke at Julius Baer told Reuters “this oil will find its way to market”.

Gains in oil prices were limited by market concerns over the slowing global economy and the ongoing trade war between the US and China which has seen the two economic superpowers slap tariffs on each other’s goods.

Last week, China reported its lowest annual economic growth in nearly 30 years.

Officials from the two countries are set to begin a new round of trade talks on Wednesday.

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Venezuelan oil exports to US amount to about 500,000 b/d

The Trump administration is considering slapping sanctions on Venezuelan oil exports in response to the re-election of President Nicolas Maduro.  The vote is seen by many as a sham election.

Should Washington decide to put sanctions on Venezuelan crude, the South American country would likely be forced to sell its heavy oil to China, India or other Asian countries, according to Reuters.

“It will be costly for Venezuela but eventually they’ll be able to sell that oil to Asia at a discount. There will be a period in the middle in which they have difficulty selling those barrels,” Francisco Monaldi, fellow in Latin American Energy Policy at the Baker Institute for Public Policy at Rice University told Reuters.

The sanctions would have an impact US Gulf Coast refiners, among Venezuela’s biggest customers.  Should the sanctions be implemented, US refiners already struggling to secure supplies of heavy crude from Canada and Mexico would face higher prices and even more limited availability.

Prices for heavy crude are already on the rise.  Mars Sour traded at a five-year high $6.90 premium to US crude on Wednesday, according to Refinitiv Eikon data.

US sanctions “would make a tight market even tighter. If it happens, it would be an unambiguous headwind for refiners already struggling to find supplies,” Bob McNally, president of Rapidan Energy Group, told Reuters.

In the meantime, traders say the US may need to sell some of its heavy crude from the US Strategic Petroleum Reserve to help cover shortfalls until additional Canadian and Mexican shipments are secured.

While the United States produces nearly 12 million barrels per day (b/d), Gulf Coast refineries require heavier crude grades to produce diesel and other high-margin products.  Lighter US crude cannot be substituted for heavy crude in these refineries.

In 2018, Venezuela exported an average of about 500,000 b/d to the United States, according to US Energy Department data.  The share of US imports of Venezuelan crude has fallen in recent years. and Venezuela’s state-run oil company, PDVSA, is shipping more oil to Russia and China as part of oil-for-debt repayment structures.

PDVSA output has tumbled to near 70-year lows as Venezuela falls further into economic and social crisis.  Since 2016, Venezuela’s crude output has dropped by half to 1.2 million b/d, according to OPEC secondary sources.

Sanctions would further punish Venezuela’s already pummelled economy.  Venezuelan oil exports to the United States account for about 75 per cent of the cash the country gets for crude shipments, according to a Barclays research note from last week.

The Trump sanctions on Venezuela could also include US exports of petroleum products to Venezuela which are used for blending heavy crude.

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US sanctions imposed on Venezuela following recent election

Venezuela’s oil minister says US sanctions recently imposed on Venezuela by the Trump administration are not just having an impact in the South American country.  Manuel Quevedo says the sanctions are an attack against the stability of the global oil market.

On Thursday during a speech at the OPEC meeting in Vienna, Quevedo said the sanctions are “a direct attack against the stability of the oil market”.  He described the sanctions as an “unconventional war with the world’s largest oil consumer” – the United States.

The country’s state-run oil company, PDVSA, is struggling with oil tankers waiting to load at the country’s two ports, a lack of money for spare parts and equipment and a shrinking workforce as employees flee Venezuela due to hyperinflation and a crippling recession.

“Venezuela’s situation should not be ignored. Venezuela could be any of your countries,” Quevedo told his fellow OPEC ministers.

Quevedo said Venezuela now produces about 1.5 million barrels per day (b/d) of crude.  As recently as 2016, Venezuela produced about 2.373 million b/d, according to Thomson Reuters data.

On May 22, President Trump signed new economic sanctions against Venezuela one day after Nicolás Maduro, the country’s socialist president, was re-elected in what has been condemned as a fraudulent election.

The US sanctions were put in place as part of a campaign to pressure Maduro to make political and market reforms, according to Trump.

At the time, President Trump did not impose any new oil sanctions, but the US order did take steps to hamper Venezuela’s ability to liquidate assets.  According to NPR, Trump said the executive order would keep the Venezuelan government from conducting “fire sales” of its assets.

“[This] money belongs to the Venezuelan people,” said Trump in May.

Venezuela’s crude is very heavy by international standards.  Much of it must be process by specialized domestic and international refineries.  The United States has traditionally been a big buyer of Venezuelan crude, but production declines have reduced the amount of crude Venezuela can offer at market.

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PDVSA exports down due to asset seizures, shipping backlog

Data from Venezuela’s state-run oil company shows PDVSA exports of crude dropped 32 per cent in the first half of June compared to May.  According to a report by Reuters, PDVSA output is declining after some of the company’s Caribbean assets were seized, disrupting crude and fuel shipments.

The data shows PDVSA exports of crude amounted to 765,000 barrels per day (b/d) in the first two weeks of June.  In May, 1.133 million b/d were exported.  These numbers do not include cargoes of upgraded oil by two of PDVSA’s joint ventures, which are exported separately.

PDVSA has been struggling for years as mismanagement has resulted in a lack of money to pay for spare parts and equipment and a significant decline in production.  Employees are also fleeing the South American country which has been crippled by hyperinflation and a severe recession.

As well, the court decision granting ConocoPhillips a $2 billion arbitration award against PDVSA has heavily impacted the company.  The US producer seized a number of refining facilities in the Caribbean under the decision, leaving PDVSA with limited ability to honour its supply contracts, especially with Asian customers.

This month PDVSA has increased its loading of larger vessels which will allow its customers to receive bigger cargoes, according to the company data and Thomson Reuters vessel tracking data.  PDVSA has also started seaborne transfers to reduce tanker congestion at the country’s main oil port of Jose.

But with access to its Caribbean ports used for shipping and storing oil reduced, the company is still mired in shipping delays.  So far in 2018, the company has exported an average of 1.24 million b/d, 26 per cent below the 1.68 million b/d shipped in 2017.

And, as of Wednesday, over 80 tankers were anchored off the Venezuelan coast waiting to load about 22 million barrels of crude and products for export.  Earlier in the month, the backlog hit 24 million barrels.

According to Reuters, this month, PDVSA asked its customers to not send tankers to lift crude exports until it had loaded the tankers that have been waiting for weeks at the country’s two main Venezuelan ports.

Only 36 per cent of deliveries of 550,000 b/d of Merey heavy crude and fuel oil to China National Petroleum Corporation, which is one of PDVSA’s largest creditors, have been completed this month.

Boscan crude shipments to Chevron hit 74 per cent of the contracted amount in the first two weeks of June.  Crude and fuel shipments to Cuba met 67 per cent of its 97,000 b/d obligations.

According to Reuters, out of 360,000 b/d of Venezuelan crude earmarked for shipment to Indian refiners, no crude shipments were delivered during the first half of June.  Reuters data does show that two large tankers carrying 3 million barrels combined have been shipped India this week.

Reliance and Nayara Energy, two of India’s refining companies, have at least two more deliveries pending in June.  Large tankers dispatched by the refiners have been waiting at the Jose port for up to a month to load.

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Greater GDP growth has potential to increase oil consumption beyond forecasted levels, putting upward pressure on crude oil prices

EIA’s May Short-Term Energy Outlook (STEO) forecasts that Brent crude oil prices will average $71 per barrel (b) in 2018, $7/b higher than last month’s STEO. Correspondingly, EIA’s forecast for regular gasoline retail prices increased to an average of $2.79/gallon (g) in 2018, $0.15/g higher that in last month’s STEO. Monthly average Brent crude oil spot prices have increased in 9 of the past 10 months, most recently averaging $72/b in April.

EIA expects West Texas Intermediate (WTI) crude oil prices to average $5/b lower than Brent prices in 2018. Even though WTI is a domestic crude benchmark and Brent is an international benchmark, gasoline prices in the United States tend to follow Brent. In late April 2018, daily spot prices for Brent crude oil reached $76/b, the highest level in nearly four years, according to the EIA.

Crude oil prices have probably been driven higher for three reasons: falling global oil inventories, heightened market perceptions of geopolitical risks, and strong global economic growth signals.

EIA estimates that global oil inventories fell an average of nearly 0.6 million barrels per day (b/d) in each of the past five quarters (January 2017 through March 2018). Oil inventories for countries within the Organization for Economic Cooperation and Development (OECD) at the end of April were an estimated 3% lower than the previous five-year average (2013–2017) in terms of days of supply, the largest percentage below the five-year average since March 2014.

In April, when EIA developed the May STEO, several geopolitical risks presented sources of uncertainty. These risks, including the re-imposition of oil sanctions against Iran and the upcoming results of May elections in Venezuela, may materialize into actions that remove oil supplies from the global market and, in turn, tighten global oil balances.

Since the publication of the May STEO, the United States announced that it would withdraw from the Joint Comprehensive Plan of Action with Iran. This news and resulting price movements are not reflected in the May STEO, issued May 8, but EIA will consider these developments when formulating the June STEO.

At the same time, global liquid fuels consumption is quickly increasing. EIA estimates global oil consumption-weighted gross domestic product (GDP) growth for 2018 will be at its highest rate since 2012.

Greater GDP growth has the potential to increase oil consumption beyond forecasted levels, which could put upward pressure on crude oil prices, and simultaneously drive systemic market movements in equities, bonds, and other commodities, which are often correlated with movements in crude oil prices.

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PDVSA Caribbean on Curaçao, Bonaire and St. Eustatius targeted by ConocoPhillips

ConocoPhillips is in the process of taking over some PDVSA Caribbean assets after the US oil giant was granted a $2 billion arbitration award to compensate the firm for the nationalization of Conoco’s projects in Venezuela, according to Reuters’ sources.

Conoco has targeted the Venezuelan state-run oil company’s facilities on the islands of Curaçao, Bonaire and St. Eustatius.  According to Reuters, these facilities accounted for about one-quarter of Venezuela’s oil exports in 2017 and play key rolls in processing, storing and blending PDVSA’s crude for export.

The sources say Conoco has received court attachments freezing the assets of at least two of the facilities and can now move to sell them.

PDVSA Caribbean assets include the 10-million barrel Bonaire Petroleum Corporation (BOPEC) terminal on the island of Bonaire.  The facility handles PDVSA logistics and fuel shipments to its customers, particularly in Asia.

PDVSA and the company’s majority-owned Citgo, lease a refinery and storage terminal on Aruba.

Finally, PDVSA rents storage tanks at the Statia terminal on the Caribbean island of St. Eustatius.  The facility, owned by US NuStar Energy, is holding over 4 million barrels of PDVSA crude which has been retained by court order, according to Reuters’ sources.

Chris Cho, spokesman for NuStar says the company is aware of the order and “assessing our legal and commercial options”.  He adds NuStar does not expect the court matter to impact its earnings outlook.

The Conoco move will impact the embattled oil company and Venezuela itself.  The South American country is mostly dependent on oil exports, which are down by about one-third since its peak.  In the first quarter of 2018, refineries in Venezuela ran at just 31 per cent of capacity.

As well, the country is now in a deep recession and its citizens are suffering from severe shortages of medicine and food and many people have fled Venezuela.

Shipments from Bonaire and St. Eustatius terminals accounted for about 10 per cent of PDVSA’s total exports, according to company accounts.  The exports of crude and fuel oil were mostly shipped to Asian customers, including ChinaOil, Zhenhua Oil and Reliance Industries in India.

Conoco also attempted to attach PDVSA inventories on Curaçao, which is home to the 335,000 barrel per day (b/d) Isla refinery and Bullenbay oil terminal.  According to the report, the order could not be immediately enforced.

Curaçao operations accounted for 14 per cent of PDVSA’s exports in 2017, including products exported by the Isla refinery to Caribbean islands and crude from the Bullenbay terminal to global customers.

Reuters reports PDVSA and the Venezuelan foreign ministry did not respond on Sunday to requests for comments.

“Any potential impacts on communities are the result of PDVSA’s illegal expropriation of our assets and its decision to ignore the judgment of the ICC tribunal,” Conoco said in an email to Reuters.

ConocoPhillips says it will work with those communities affected by the court decision and resulting takeovers to address any issues that may arise.

PDVSA and the Venezuelan foreign ministry did not respond to requests for comment. Meanwhile, Dutch authorities said they are assessing the situation on Bonaire.

On Friday, PDVSA ordered its oil tankers sailing in the Caribbean to return to Venezuelan waters to await instructions, according to documents reviewed by Reuters.

“This is terrible (for PDVSA),” a source familiar with the court order of attachment told Reuters. PDVSA “cannot comply with all the committed volume for exports” and the actions taken by ConocoPhillips will imperil PDVSA’s efforts to ship crude to China or access its assets in Bonaire.

Conoco’s claims against the South American country and PDVSA in international courts total $33 billion.  A separate arbitration case involving the Conoco’s loss of Venezuelan assets is currently before the International Centre for the Settlement of Investment Disputes, which is a World Bank tribunal.

Venezuela is also facing similar claims from Exxon Mobil over the 2007 nationalization of its projects in Venezuela.

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Supplies of Canadian oil sands heavy crude are increasingly being refined on the U.S. Gulf Coast (USGC) and could top 1.2 million barrels per day (mbd)—a full one-third of the region’s heavy oil refining market—by 2020, says a new report by business information provider IHS Markit. Current runs of Canadian crude in the USGC market are estimated to already be in excess of 800,000 barrels per day (bpd), the report says.

Entitled Looking South: A Canadian Perspective on the U.S. Gulf Coast Heavy Oil Market, the Oil Sands Dialogue report says that the increasing volumes into the USGC refining market is coming at an opportune time for both nations.

Imports from Canada have exceeded demand in their traditional import market—the U.S. Midwest—where they have joined renewed U.S. domestic light oil to collectively displace nearly all other imports.

“The U.S. Gulf Coast is the most logistically approximate and technically suited to receive increasing volumes of heavy oil from Canada,” said Kevin Birn, executive director – IHS Markit, who heads the Oil Sands Dialogue.

“With supply overtaking demand in the U.S. Midwest and traditional sources of offshore heavy supply to the Gulf Coast in decline, Canadian supply has become an obvious and attractive alternative.”

The U.S. Gulf Coast is home to the world’s highest concentration of heavy oil refineries and more than 90 percent of the heavy oil supplied to them comes from imports.

But supplies from some traditional sources of these imports are waning. Over the past five years, production from Mexico and Venezuela—two key oil sands competitors—has declined by nearly 1 mbd. This is increasing the need for Canadian heavy crude oil of similar quality, the report says.

The 800,000 bpd estimate for current runs of Canadian crude in the USGC is already significantly higher than many other estimates. IHS Markit believes that Canadian heavy oil imports may be simply “stopping off” at Cushing, OK in the U.S. Midwest—where they have already exceeded demand in that market—before being rerouted to the Gulf coast.

Due to the way imports are often tracked, these imports would be counted as having been delivered into Cushing rather than to their final destination.

Increased volume in the USGC market would raise Canada’s already sizeable reliance on the U.S. oil market, however. And while the United States provides security of demand for Canada, there are risks to overreliance, the report says.

The IHS Markit forecast assumes the completion of all the country’s remaining long-distance export pipelines. If those projects were delayed or Canadian or other heavy oil supply is more prolific than anticipated, Canada may have to compete more aggressively for market share in the United States—something it has not yet had to do.

“Although Canadian imports are of similar quality as Latin American crudes, they are not identical. There is a point when more extensive modifications will be required to better tailor facilities to accommodate greater volumes of the Canadian heavy crude,” said Birn.

“In a situation where the level of competition is high, Canadian crude may have to adjust price to incentivize refiners to make additional modifications and/or displace greater quantities of offshore imports.”

Alternative diversification strategies—such as customizing oil sands blends or developing upstream partial processing technologies that would result in the marketing of a greater range of crude oil qualities—can help mitigate the risks. However, given the scale of Canadian heavy oil supply today and anticipated growth, these solutions would not remove the risk and would still take considerable investment and time, the report concludes.

“The reality is that Canada—the 5th largest oil producer in the world—maintains an almost singular reliance on one market,” Birn said. “Such a situation is unique in the world and will always carry associated concerns.”

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