Venezuela Spurs Action

Venezuela is produces a heavy crude oil that requires extra processing/upgrading to make it useful. It has been trying to diversify its sales away from the US. Not all countries have refineries that can process Venezuela's heavy crude, but China has some capacity, for example. Heavy crude supply from Mexico has also fallen over the past year. The net effect is to reduce the differential between heavy and light crude oil. The discount for heavy has been reduced according to a report in the Globe and Mail, from an average of around 22% last year to 17% this year. Recent deals it notes have been seen a 10% discount only. The big winner, the report says is Canada's oil patch which also produces heavy crude and benefits from having its crude at a smaller discount to light.

Meanwhile, Venezuelan President Chavez nationalistic agenda is risking biting the hand that wants to feed it. Specifically, Japan is reconsidering a $1.5 bln loan to Venezuelan refineries after the government took over Japanese assets and has fallen in arrears on its oil service payments. In late May, the government nationalized the hot briquetted iron industry, which had a few large Japanese investors. Last week, Venezuela's Congress passed a law that will permit the take over of primary and intermediate chemical plants, including a methanol plant where Japanese companies have a majority stake. The fallout for Venezuela could be greater if Japan's government import/export, decides to end coverage for the South American country.