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Did China Just Sound the Death Knell for Venezuela’s Oil Industry?

China announces a tax hike on sour crude

China has announced that it will impose taxes on heavy sour crude, a move that could hit Venezuela hard as it continues to struggle with U.S. sanctions and a dilapidated oil industry. Media reports suggest as many as 400,000 bpd of Venezuelan oil could be orphaned as new Chinese tax laws make it impossible for the country to export its crude to Asia. New regulations expected to come into place on June 12 would make the profit margins on Venezuelan oil too low to warrant its current export route.

Venezuela has not been exporting oil directly to China since 2019, largely due to the U.S. sanctions that continue to restrict the country’s oil exportation. However, China has been importing Venezuelan oil via Malaysian refineries, where it is mixed with fuel oil or bitumen before continuing on to China. China’s new rules could add around $30 per barrel to this “diluted bitumen”, making it economically inviable. Light cycle oil (LCO) and mixed aromatics will also be taxed under the new scheme.

Chinese customs data suggests that around 380,000 bpd of diluted bitumen were coming into the country via Malaysia between January and March, much of which originated in Venezuela.

While non-U.S. companies are not explicitly prevented by the sanctions from buying Venezuelan oil, it has been highly discouraged. However, due to China’s growing oil demand, many of these alternative routes of access have been largely overlooked by the U.S.

The Chinese Ministry of Finance stated of the background for the new tax introduction, “A small number of companies have imported record amounts of these fuels and processed them into sub-quality fuels which were then funneled into illicit distribution channels, threatening fair market play and also causing pollution”.

New taxes are expected to pave way for opportunities for China’s domestic refiners to increase supply as well as boosting prices as the country’s fuel demand continues to increase. This comes as Chinese oil refiners hit higher production levels in April, signaling a sustained recovery in crude processing.

While Venezuela is facing huge changes in its export outlook due to Chinese taxes, it seems as if the U.S. will continue to waive sanctions for several international companies based in Venezuela, allowing several firms to continue existing in the country within limits.

Previously permitted waivers are expected to continue for oil major Chevron and services companies Schlumberger, Halliburton, Baker Hughes, and Weatherford. This will allow the firms to preserve their assets so long as they don’t carry out maintenance activities or pay local employees.

The waivers are expected to be renewed for at least six months in June, after which it could be possible for Chevron to lift Venezuelan oil, as stated in an early waiver. However, for now, Venezuela does not seem to be a key foreign policy focus for Biden, making this possible but unlikely.

It seems as though Venezuela is trapped in somewhat of a stalemate, unable to progress with U.S. allies due to heavy sanctions on its oil sector and unable to export to major importer China due to heavy taxes. While there is the potential for wiggle room in the coming year, as Biden creates a clearer foreign policy strategy, the future is still unknown for the untapped potential of the Latin American oil giant.

Source: OilPrice.com

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Ronnie
Ronnie
18 days ago

Excellent !
American demonstrates yet again their magnanimous and benevolent attitude to another nations own oil. The money the other nation earns incidentally, pays for baby formula and medical supplies: that is if Uncle Sammy from the Sopranos has not had the Oil Tankers intercepted.
It truly is a learning moment, as to why America should rule the planet with bombs away.

China on the other hand might have a mega oil refinery about to be build over the next week or two and commissioned by Monday morning. So they can process the oil in a organised manner and save little children from malnutrition and nursing mothers with cracked nipples. The cream is not cheap!

God have mercy on the United States of America.

Jerry Hood
Jerry Hood
18 days ago

Satanic,zionazi USrael is madd for not having Vemezuela’s oil for peanuts,as before! USrael and the zionazi jews there are global PARASITES!!!

Jerry Hood
Jerry Hood
18 days ago
Reply to  Jerry Hood

So is their parasitic ” Petrodollar”….

M Radant
M Radant
17 days ago
Reply to  Jerry Hood

Jews are the cockroaches of the human race!

yuri
yuri
18 days ago

much of Venezuelan oil is traded to other nations and resold to evade US sanctions

XSFRGR
XSFRGR
18 days ago

Venezuelan petroleum feed stock is not particularly good for fuel, but it is arguably the best heavy crude in the world for plastics, chemicals, and heavy end products like asphalt, and coke. China isn’t going to dump one of its best suppliers after constructing the refineries to process heavy crude, and this will blow over as soon as the tax code is adjusted. This entire episode will turn out to be another embarrassment for the empire.

PS: OilPrice.com is an empire operation.

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