China Sinochem buys rare cargo of Venezuelan oil after US suspends sanctions

© Reuters. The Sinochem logo is seen outside the Sinochem office building in Beijing, China, February 21, 2017. REUTERS/Damir Sagolj/Files

By Chen Aizhu and Florence Tan

SINGAPORE (Reuters) – China’s Sinochem Corp bought a million barrels of Venezuelan crude for delivery in December, a rare purchase as the state oil and chemical group benefits from Washington’s suspension of sanctions against the South American producer.

In mid-October, Washington suspended sanctions on Venezuelan oil and gas exports for six months, sparking a wave of spot deals in oil and fuel through Western traders such as Trafigura and Vitol, as well as intermediaries.

Sinochem has agreed to buy a cargo of Venezuela’s Merey heavy crude at a discount of $11 a barrel to date on a ship-to-ship (DES) basis, three traders with knowledge of the purchase told Reuters.

The cargo is destined for delivery to Sinochem’s Changyi refinery in eastern Shandong province, one of several running in the refining hub following a state-mandated merger with ChemChina.

“(Sinochem) has barely touched Venezuelan oil before, although several of its subsidiaries are configured to process heavy crude,” a trader familiar with its Changyi plant said on condition of anonymity.

Sinochem’s press office said in a statement that the company “consistently conducts its operations in strict compliance with legal and regulatory requirements” and does not comment on market speculation.

Before sanctions were eased, the main customers for Merey crude were Chinese independent refiners, which took advantage of steep discounts after previous top buyer PetroChina stopped buying from Caracas since late 2019 as the state-owned giant hedged against the prospect of secondary sanctions.

Sinochem has long shied away from trading in sanctioned oil, fearing any adverse impact on its wider business, senior business sources familiar with the group’s thinking said.

The $11 discount for Sinochem is comparable to $20 discounts for Merey’s deals to China since the sanctions era, reflecting tightening supplies due to stagnant domestic production in Venezuela and rising demand from India and the United States.

As part of the sanctions, Venezuelan crude shipments to China were usually labeled as coming from Malaysia.

Shipments of Venezuelan crude and fuel to Asia fell to about 10 million barrels in November from 16.5 million barrels the previous month amid the easing of sanctions, which allows Venezuela to export to any market, according to PDVSA documents and LSEG tanker tracking data.

“With higher prices, the margins of China’s independent refiners processing Merey are getting thinner,” said a Shandong refinery source.