Venezuela production will keep falling
Posted: Thu Mar 29, 2018 9:35 am
The Venezuela Dilemma by TPH on March 29, 218
Falling Production, Narrowing Differentials Presenting Potential Issues for Gulf Coast Coking Refineries
Venezuelan crude production is in a sorry state of affairs, with the country recording a whopping -12% decline (-273mbpd y/y) in 2017 (the numbers are even worse exit to exit). To stabilize production, it would probably take a doubling of rig count and significant additional investment, which doesn't appear likely anytime soon. As a result of the reduced supply, Venezuelan crude discounts are narrowing. Venezuela barrels traded at a $7.61/bbl discount to LLS in 2017, down from $9.69 in 2016. In Q1'18, that discount is even smaller at $6.63/bbl. Falling Venezuelan supply and narrowing discounts are potentially alarming for US Gulf Coast refiners. In 2017, Venezuela tied with Mexico as the largest supply source for heavy crude deliveries to the Gulf Coast (both at 28% share). Canada has been growing but is still at 19%. The largest US buyers of Venezuelan barrels include VLO, Citgo, CVX, PSX, and PBF, which together accounted for 88% of all Venezuelan crude imports in 2017. MPC, LYB, and Motiva are also fairly ratable importers, although on a much smaller scale. Among the US independent refiners, PBF easily leads the pack on earnings exposure to Venezuelan crude, with every $1/bbl change in Venezuelan crude differentials impacting EPS by 6%. Given the looming threat of an oil embargo or other sanctions, we believe Venezuela is a key issue to monitor for US Gulf Coast refiners.
Falling Production, Narrowing Differentials Presenting Potential Issues for Gulf Coast Coking Refineries
Venezuelan crude production is in a sorry state of affairs, with the country recording a whopping -12% decline (-273mbpd y/y) in 2017 (the numbers are even worse exit to exit). To stabilize production, it would probably take a doubling of rig count and significant additional investment, which doesn't appear likely anytime soon. As a result of the reduced supply, Venezuelan crude discounts are narrowing. Venezuela barrels traded at a $7.61/bbl discount to LLS in 2017, down from $9.69 in 2016. In Q1'18, that discount is even smaller at $6.63/bbl. Falling Venezuelan supply and narrowing discounts are potentially alarming for US Gulf Coast refiners. In 2017, Venezuela tied with Mexico as the largest supply source for heavy crude deliveries to the Gulf Coast (both at 28% share). Canada has been growing but is still at 19%. The largest US buyers of Venezuelan barrels include VLO, Citgo, CVX, PSX, and PBF, which together accounted for 88% of all Venezuelan crude imports in 2017. MPC, LYB, and Motiva are also fairly ratable importers, although on a much smaller scale. Among the US independent refiners, PBF easily leads the pack on earnings exposure to Venezuelan crude, with every $1/bbl change in Venezuelan crude differentials impacting EPS by 6%. Given the looming threat of an oil embargo or other sanctions, we believe Venezuela is a key issue to monitor for US Gulf Coast refiners.