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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


China Sucks Up Venezuela for Oil. The Energy Report 07/02/2025

U.S. sanctions on Venezuela are creating interesting dynamics in the global diesel market. We have a diesel dilemma because of tight global supply and strong global demand as US supplies plummet and global supplies are not much better. Global players are scrambling for supply as Russia pauses product exports and Saudis raise the selling price for crude and US diesel supplies plummet. And while the US has maintained and expanded sanctions on Venezuela as of July primarily targeting the Maduro regime it’s coming at an expense to the US diesel supplies.

Oil is also looking at the fact that Iran put in a law that it will not cooperate with the International Atomic Energy Agency. While China has been feasting on cheap Iranian oil, when times get tough, they had to look for alternatives. China, because of the threat of possibly losing Iranian oil imports, ramped up their purchases of oil from Venezuela. China was concerned that they may lose Iranian exports.

China has been keen on continuing its purchase of heavier oil supplies from Iran due to its dependence on these resources for meeting diesel and distillate demands and because Iranian oil was cheap and easy. Venezuelan heavy oil is also in high demand because of the global shortage of distillate fuels, which is affecting the heating oil market in the United States and contributing to the rising crack spread.

The American Petroleum Institute last night reported yet another disturbing 3,458-million-barrel drop in distillate supply along with a big drop in crude supply at the Cushing, Oklahoma delivery point. The API reported that while overall supply increased slightly by 680,000 barrels, they posted a 1.417-million-barrel drop in Cushing.

Reuters reported that Venezuela exported 844,000 barrels per day (bpd) of crude and fuel in June, which is an 8% increase from the previous month. This increase offset the loss of the U.S. and European markets by sending more cargoes to China, according to shipping data and documents.

In late May, Washington terminated a group of licenses that had authorized partners of oil company PDVSA, including Chevron and Repsol, to take Venezuelan crude bound for U.S. and European refineries. The state firm increased exports to Asia, selling its crude and fuel through less-known intermediaries that deal with independent refiners in China. These shipments include Boscan heavy crude, previously exported by Chevron to the U.S., according to internal PDVSA documents. A total of 27 tankers departed from Venezuelan waters in June, carrying an average of 844,000 bpd of crude and refined products and 233,000 metric tons of byproducts and petrochemicals, the data showed. Oil exports averaged 779,000 bpd in May, and the country also shipped 329,000 metric tons of byproducts and petrochemicals that month.

The tight supply of diesel is giving significant support to oil prices. Expectations are that supplies will tighten, and the crack spread remains strong. Historically, Moore Research points out, from July 17th to July 27th, the gasoline crack spread has increased in 13 out of the last 15 years, while the diesel crack spread has risen in 12 out of the last 15 years from July 17th to August 27th. Currently, diesel crack spreads are performing well, with gasoline slightly lagging.

Natural gas prices are trying to gain some ground after being pummeled even though we’re seeing demand for natural gas probably hit record highs. US production is one of the reasons that we’ve seen prices struggle. One significant reason has been larger than expected inventory injections, particularly in recent weeks.

Natural gas is also impacted by geopolitical tensions following the United States’ successful attack on Iranian nuclear facilities. In April, US natural gas production reached 106.3 billion cubic feet, maintaining high levels despite a consistent decline in rig counts. Typically, natural gas prices dip around the 4th of July as factories slow down for vacations.

We expect the market to tighten later this year, influenced largely by weather. Fox Weather reports that, “Millions of people in Florida and the Southeast are keeping a close eye on the weather forecast that could halt outdoor and beach plans across the region over the Fourth of July holiday weekend.

In addition to the precipitation, the National Hurricane Center (NHC) expects to be monitoring an area of disturbed weather for tropical development, which will become the main focus for forecasters through the weekend and into next week. Regardless of tropical development, Florida is expected to see additional flooding rain and thunderstorms through the foreseeable future.

Make sure you download the Fox Weather ap to keep up with the latest market moving weather events. Stay tuned to the Fox Business Network Invested in you!



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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