Sanctions disrupt shipments but near-term supply remains ample
The seizure of a Venezuelan oil tanker by the United States last week is expected to have only a limited short-term impact on China’s crude market, according to traders and analysts. Large volumes of Venezuelan oil were already en route to China before the move, while weak demand and rising inventories are helping absorb the shock.
Exports from Venezuela have dropped sharply following the seizure and the imposition of new U.S. sanctions on shipping firms and vessels involved in transporting its crude. The risk of further seizures has discouraged new shipments, but China’s position as the world’s largest oil importer provides some insulation.
China remains the biggest buyer of Venezuelan crude
China is the top destination for Venezuelan oil, although the supply represents only about 4% of China’s total crude imports. Analysts say arrivals are still set to rise in December and January, reflecting a surge in exports over the previous four months and deep discounts that make the crude attractive to buyers.
“The surge in Venezuela flow to China increased in anticipation of sanctions,” said Mukesh Sahdev, founder and chief executive of energy consultancy XAnalysts. He added that the full impact of the tanker seizure and any further measures is more likely to be felt in February.
Record arrivals of Merey crude expected
December arrivals of Merey, Venezuela’s main export grade, are expected to exceed 600,000 barrels per day. Tanker-tracking firm Vortexa estimates arrivals could reach that level, while Kpler projects December imports at around 664,000 bpd, which would mark a record if confirmed.
These flows are reaching China’s independent refiners, often referred to as “teapots,” after voyages that can take up to 60 days. The discounts on Venezuelan crude have deepened, helping to sustain demand despite geopolitical risks.
Floating storage volumes add pressure
Venezuelan oil is arriving alongside ample supplies from other sanctioned producers, notably Russia and Iran. This has pushed Asian floating storage to about 71 million barrels last week, up from 53 million barrels at the end of October and roughly 33 million barrels in early September, according to Kpler data.
The build-up in storage has further weighed on prices. At least one-third of the estimated 650,000 bpd of Merey discharged in China in November is still searching for end-buyers, according to Vortexa.
Limited alternatives for independent refiners
While Venezuelan crude accounts for a modest share of China’s overall imports, it plays a key role for a small group of independent refiners. Only about half a dozen teapot refiners regularly buy Merey, but replacing it can be costly and not immediately feasible.
The extra-heavy grade remains significantly cheaper than alternatives such as Canada’s Access Western Blend or Colombia’s Castilla. Some buyers have begun purchasing small volumes of Canadian crude as a hedge against geopolitical risk, but analysts say it will take time to assess the full impact of the U.S. action.
