Venezuela faces demands for big oil discounts and contract changes after tanker seizure

By Marianna Parraga

HOUSTON, Dec 16 (Reuters) - Venezuela's oil customers, including Chinese refiners, are demanding deeper discounts and changes to spot contracts from state-run company PDVSA, following the U.S. seizure of a ship carrying the OPEC country's crude, traders and sources said.

As Washington's pressure on President Nicolas Maduro intensifies, the U.S. Coast Guard last week intercepted the vessel Skipper near Venezuela's coast in its first seizure of an oil tanker or cargo from the South American country. The U.S. also imposed sanctions against six ships and their linked companies.

By the time the U.S. moved to seize the vessel, which had carried oil under sanctions from Venezuela and Iran, PDVSA was already struggling to allocate its crude close to contract prices due to a growing flood of oil under sanctions to its main market, China. The company is dealing with oil cargoes stuck in Venezuelan waters and tankers making U-turns at the vessel owners' request.

PRICE DISCOUNTS TO CHINA WIDEN

Discounts on prices of Venezuela's flagship Merey heavy crude bound for China have widened to up to $21 per barrel below benchmark Brent prices LCOc1 from between $14 and $15 per barrel last week, two traders and a company source said. They spoke on condition of anonymity due to commercial sensitivity.

Most of the discount increase reflects the rising cost of a "war clause" requested by vessel owners to protect themselves from interceptions, delays or diverted flows due to the ongoing U.S. military presence in the Caribbean.

Since PDVSA was first hit with sanctions in 2019, which deprived it of its traditional customers, including U.S. Gulf refiners, the company has had to agree to steep price discounts. But PDVSA is now facing immense competition to sell to Chinese buyers, who have access to abundant supplies of crude from Russia and Iran that is under sanctions.

Many customers are asking PDVSA to relax trading requirements, especially the company's demand that oil cargoes must be prepaid in digital currency to authorize departure. Other clients want to be reimbursed for demurrage, a fee charged for shipping delays, the sources said.

If trading terms are unchanged amid increased risks for customers and shippers to carry oil out of Venezuela, PDVSA could face a flurry of requests for cargo returns, a company source said.

PDVSA did not reply to a request for comment. Venezuela's Oil Minister Delcy Rodriguez said the company's operations would not be interrupted by the U.S. actions, according to the ministry and PDVSA.

PDVSA's main joint venture partner, U.S.-based Chevron CVX.N, remains the only company exporting crude without delays from Venezuela, while shippers working with sanctioned vessels have been setting sail in "dark mode," or with their transponders off, to avoid interceptions.

A tanker chartered by Chevron, the Ionic Anax, set sail on Tuesday bound for the U.S., while another, the Minerva Astra, was set to load at the Bajo Grande port, LSEG data showed.

STUCK OR DISCOUNTED

Washington has been trying to cut the economic lifeline of Maduro's administration, which relies on oil revenue to fund government spending.

This year, China has been the destination of between 55% and 90% of Venezuela's monthly oil exports, compared with 40%-60% last year. In November, the country exported 952,000 barrels per day of oil, of which 778,000 bpd went to China, according to ship monitoring data.

Independent Chinese refiners, already well-supplied with rising offers of Russian and Iranian oil at discounts, have not been worried about immediate supply from Venezuela.

But analysts have warned that Venezuelan supplies in China could be reduced in February if tankers currently loaded and waiting in Venezuelan waters are unable to depart.

As of this week, more than 11 million barrels of Venezuelan oil were stuck on vessels waiting to leave as traders tried to negotiate further discounts, the sources said.

Adding to PDVSA's troubles, a cyberattack this week took administrative systems out of service, forcing a temporary suspension of oil deliveries at its terminals.