Canada left out as heavy oil prices surge above WTI in China

U.S. sanctions that have effectively blocked American imports of Venezuelan oil are leading to a crude-price surge thousands of miles away in China.

State-run energy giant PetroChina Co. is selling Venezuelan Merey oil at a premium of about $5 a barrel to benchmark U.S. West Texas Intermediate, according to an offer document seen by Bloomberg.

The grade was sold at a discount in the Asian nation before the Donald Trump administration began targeting the OPEC producer late last month in a bid to oust autocrat Nicolas Maduro.

The U.S. measures have sparked speculation over whether Venezuela will be able to sustain exports of its dense and sulfurous “heavy-sour” crudes. Meanwhile, American refiners are scouting for alternatives, squeezing supplies of similar oil varieties across the globe.

Without significant access to tidewater exports, Canadian heavy oil producers are effectively left out of the global price swing. Barrels that are able to reach the U.S. Gulf Coast refining market by rail traded at par or even at a premium to WTI in the first quarter, Cenovus Energy Inc. said on Wednesday.

Booming demand for infrastructure in China has made such grades prized in the Asian nation because they are suited for making bitumen -- a residue of refining that can be used to produce asphalt.

The primary product from Alberta's oilsands is diluted bitumen.

China almost doubled imports of Venezuelan oil in January from a month earlier, tanker-tracking data compiled by Bloomberg show. That means its state oil companies have supplies that now fetch higher prices because of the uncertainty surrounding heavy-sour grades in the global market.

The Merey grade accounted for 80 percent of the Latin American nation’s shipments to China last year, according to the data.

PetroChina sets a monthly offer price for Merey crude sales to its customers -- mostly smaller privately owned refiners -- based on its own formula. It’s selling the oil at a premium of $5.0272 a barrel to WTI for February, with an additional $2.70 per barrel of agent fees, according to the offer document seen by Bloomberg.

For January, the company offered the grade at a $3 premium, three traders who participate in the market said.

Heavy grades across the globe are showing stronger pricing. The premium of the Gulf of Mexico’s Mars crude to the U.S. benchmark has jumped to a five year high.

While Middle East exports are typically not as heavy as Venezuelan supplies, they are more so than light varieties such as U.S. shale and European North Sea oil. Swaps for regional marker Dubai has strengthened to its strongest level in nine years against London’s Brent.

© 2019 Bloomberg L.P, with files from JWN