The world’s biggest international trading houses, which couldn’t trade Venezuelan oil for years due to the sanctions of the first Trump Administration, are back in the business, with the backing and blessing of the U.S.
Following the capture of Nicolas Maduro and the U.S. takeover of Venezuelan oil sales, Vitol Group and Trafigura were authorized by the Trump Administration to help market the oil from the world’s biggest crude resource holder.
The trade could be potentially very lucrative for the trading houses, which would reap benefits from the U.S.-backed sales of Venezuelan oil immediately, unlike the oil companies that haven’t committed yet to investments in Venezuela’s oil industry.
However, the trade may not be as lucrative as it looks.
In the early days of the return to Venezuela’s oil trade, the global traders are financing the storage of the oil until they find buyers, a source with knowledge of the matter told Bloomberg.
Yet, the current forward curve in oil prices does not encourage storing oil for future profits as the market structure is in backwardation—a structure in which prices for front-month contracts are higher than the ones further out in time.
That could be a drag on earnings for the top traders, which also have to contend with rising shipping rates amid the major change in Venezuela’s oil flows.
A week after the ousting of Maduro, the Venezuela trade turned from illicit under-the-radar shipments to China on shadow fleet tankers to flows to U.S. refineries on the Gulf Coast on legit vessels chartered by traders authorized by the Trump Administration.
The biggest crude trade flow change so far this year resulted in rallying freight rates as more tankers of the mainstream fleet entered the Venezuela oil trade, replacing the sanctioned ships of the shadow fleet, which the U.S. naval forces are hunting down and seizing from the Caribbean to the North Atlantic.
Despite the near-term challenges in paying up for storage and tankers, the authorized marketers of Venezuela’s oil, Vitol and Trafigura, have the ‘early bird’ advantage over other trading houses and Big Oil in the new trade.
And they are seizing the opportunity.
Vitol and Trafigura started offering Venezuelan crude to refiners in China and India for March delivery days after two of the world’s biggest independent oil traders obtained special U.S. licenses to help market Venezuela’s oil, according to multiple media reports.
At the request of the US government, Trafigura and Vitol are providing logistical and marketing services to facilitate the sale of Venezuelan oil, Trafigura said early this month, following a meeting of oil industry executives with U.S. President Donald Trump at the White House.
At the meeting on January 9, Trafigura’s CEO Richard Holtum told President Trump, “Our first vessel should load in the next week.”
Vitol’s senior trader and Trump donor, John Addison, said, “We’re here to ensure that you’re going to be able to move all of this oil all around the world at the best price possible so that the influence that you have over the Venezuelans will ensure that you get what you want.”
Vitol is offering Venezuelan crude to Chinese refiners at a discount that’s three times narrower compared to the illicit sales from Venezuela before Maduro’s ousting, anonymous traders with knowledge of the matter told Bloomberg last week.
Vitol has recently offered cargoes of Venezuela’s flagship Merey heavy sour crude grade to China at a discount of $5 per barrel to ICE Brent, according to Bloomberg’s sources.
This compares with a discount as wide as $15 a barrel to Brent on a delivered basis before the U.S. blitz in Venezuela.
A month ago, China was the most important buyer of Venezuelan crude in exports that were under sanctions by the U.S. and were carried out by a shadow fleet of tankers.
U.S. and other major international oil firms haven’t committed any investment out of the $100 billion President Trump has touted, but the top trading houses are already moving back into the trade that was off-limits just a month ago.
By Tsvetana Paraskova for Oilprice.com
