Venezuela’s PDVSA raises prospect of force majeure on oil exports — Sources

HOUSTON/CARACAS: OPEC member Venezuela has raised the prospect of declaring force majeure on contracts with major crude buyers amid plummeting output from its oil fields and tanker bottlenecks at ports, according to three sources familiar with the matter.

Falling production from Venezuela has contributed to a rally in global oil prices to a near four-year high, and other OPEC members may boost output at a meeting later this month to compensate for the shortfall and other risks to global supplies.

Oil is the financial lifeline for the embattled socialist government of President Nicolas Maduro, but his cash-strapped administration has failed to invest enough in the industry to prevent its decline.

Venezuela’s state-owned oil firm PDVSA has told some customers that they must send vessels equipped to accept shipto-ship oil transfers rather than load at its ports.

If they do not accept the terms, PDVSA is considering force majeure, in essence declaring its contracts incapable of being fulfilled, the sources familiar with the matter said.

It has separately begun notifying all its customers that it will no longer receive new tankers for loading at Jose or Paraguana, its main export terminals, until ships already in line are served.

Most customers have so far refused the ship-to-ship transfer request due to the lack of a third party supervising the operations, according to shippers and traders. Additional costs for completing the transfer also contributed to the refusals.

PDVSA has been using sanctions imposed on the company by US President Donald Trump as a rationale for the change, according to one of the sources.

Venezuela’s export terminals have grown overcrowded since US oil firm ConocoPhillips last month won court orders freezing PDVSA’s key Caribbean operations, where the Venezuelan company used to ship large cargoes to Asian destinations.

There were more than 70 tankers off the coast of Venezuela on Tuesday, according to Thomson Reuters vessel tracking data.

“We are going to try the shipto-ship idea first,” the source familiar with the matter said.

“Many customers are going to prefer this than continuing to accumulate demurrage,” the source added, referring to fees charged for long waiting times.

One of PDVSA’s Indian customers confirmed it had received a request to load its cargoes via ship-to-ship transfers.

The buyer so far has refused to accept the new terms, said an employee who was not authorized to speak publicly and requested anonymity.

Traders and shippers were skeptical that the transfers would succeed in easing the bottlenecks. — Reuters