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.
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.
Source: oilprice