China’s Sinochem Corp. has bought 1 million barrels of Venezuelan crude oil for delivery in December.
This rare purchase by the state oil and chemicals group highlights the opportunities created by the temporary lifting of sanctions on the South American producer.
In mid-October, the United States announced a six-month suspension of sanctions on Venezuela’s oil and gas exports, which has prompted a flurry of spot trades of crude and fuel through Western traders such as Trafigura and Vitol, as well as middlemen.
Sinochem, one of China’s largest state-owned companies, has now joined in on the action by agreeing to buy a cargo of heavy Venezuelan Merey crude at a discount of $11 a barrel to dated Brent crude on a delivered-ex-ship (DES) basis.
The purchased cargo is intended for delivery to Sinochem’s Changyi refinery in the eastern province of Shandong. This refinery is one of several that Sinochem operates in the refining hub, following a state-mandated merger with ChemChina.
According to Reuters, Sinochem barely touched Venezuelan oil before, although several of its subsidiary plants are configured to process heavy types of crude oil.
In a statement, Sinochem’s press office said the company “consistently conducts its operations in strict adherence to legal and regulatory requirements.”
The recent easing of sanctions has brought about a shift in the dynamics of the global crude oil market. Chinese independent refiners, who were once the main customers for Merey crude, are taking advantage of steep discounts after previous top buyer PetroChina halted buying from Caracas since late 2019 as the state giant shielded itself from the prospect of secondary sanctions.
Sinochem has long stayed clear of dealing in sanctioned oil, fearful of any adverse impact on its broader business, said senior trading sources familiar with the group’s thinking.
The $11 discount for Sinochem compares with discounts of $20 for sanctions-era Merey trades into China, reflecting tightening supplies due to stagnant domestic production in Venezuela and growing demand from India and the United States.
During the sanctions period, Venezuelan crude cargoes to China were typically labeled as being from Malaysia.
Notably, Asia-bound shipments of Venezuelan crude and fuel dwindled to about 10 million barrels in November from 16.5 million barrels the previous month amid the relaxation of sanctions, which allows Venezuela to export to any market, according to PDVSA documents and LSEG tanker tracking data.
“With the higher prices, margins are thinning for Chinese independent refiners processing Merey,” said a Shandong-based refinery source.
