By Nidhi Verma and Arathy Somasekhar
India’s Reliance Industries is set to utilize naptha supplies as a form of payment for crude purchases from Venezuela, following a recent approval from the U.S. to resume oil trade with the sanctioned producer. Sources familiar with the contract terms revealed this development.
Reliance will pay in dollars for the remaining balance of the crude purchase. The company had halted direct purchases from Venezuela in April due to sanctions, but received authorization from the U.S. in July to resume importing crude from the country after submitting a request in May.
Operating the world’s largest refining complex, Reliance plans to provide naphtha, a refined product, from the U.S. to partially cover its Venezuelan oil purchases. This arrangement is similar to past trades between Reliance and Venezuela’s state company PDVSA, as per PDVSA’s export and import records. Venezuela requires naphtha as a diluent for its heavy crude.
Reliance’s two refineries in western Gujarat state have the capacity to process around 1.4 million barrels per day (bpd). The complexity of these facilities enables the company to process cheaper and heavier crudes like Merey from Venezuela.
Details regarding the volumes and duration of the U.S. authorization for Reliance’s Venezuelan oil purchases were not disclosed by the sources. While there is a possibility of fresh sanctions on Venezuela due to a disputed election, individual oil licenses are not expected to be affected for now, according to U.S. officials.
There have been delays in the resumption of oil imports at Venezuelan ports due to overbooked loading schedules, impacting Reliance and other Asian buyers. Venezuelan production has not increased rapidly enough to fulfill contracts with existing and new customers, resulting in delays in cargo deliveries.
Earlier this year, the Indian refiner had limited direct loadings of Venezuelan crude out of concerns that the license could be revoked at any moment, potentially affecting vessels in transit or at Venezuelan ports. In June, Reliance’s refinery received 2 million barrels of Venezuelan oil, although the supplier remains unidentified.
Analysis:
Reliance Industries’ decision to use naptha supplies for crude purchases from Venezuela signifies a strategic move to navigate around sanctions and continue trading with the sanctioned producer. This approach allows Reliance to secure vital oil supplies while also leveraging its refining capabilities to process heavier crudes. The delays in cargo deliveries highlight the challenges faced by importers of Venezuelan oil, impacting the global energy market and potentially influencing oil prices. As the situation in Venezuela evolves, it is crucial for investors and stakeholders to monitor developments in the oil sector for potential implications on their finances and investments.