HOUSTON/SAO PAULO (Reuters) - Brazil’s Braskem has terminated a contract to buy light virgin naphtha and natural gasoline from Venezuela’s state-run oil company PDVSA that would expire this month, the petrochemical company said on Thursday.
The Sao Paulo-based firm declined to comment on the reason for ending the long-term supply agreement early, but said the contract represented less than 0.1 percent of its annual naphtha consumption.
“Braskem continues regular purchases of raw materials, keeping up its industrial operations in Brazil,” it said in a statement to Reuters.
Petróleos de Venezuela, S.A., commonly known as PDVSA, did not reply to a request for comment.
The Venezuelan energy company has been struggling to maintain its commercial relationships amid difficulties paying providers and because of sanctions imposed on the company and one of its senior executives by the United States. The sanctions in part bar companies from entering into new financing arrangements with PDVSA or the Venezuelan government.
A Braskem source and a PDVSA source said the sanctions on PDVSA, which are intended to block financing to President Nicolas Maduro’s government, had played a role in the decision. Both sources declined to be identified as they were not authorized to speak with media.
The supply contract was part of a financial agreement extended by Braskem to PDVSA in 2011, according to the PDVSA source. PDVSA had been repaying the financing with the naphtha and natural gasoline cargoes.
“PDVSA finished paying in February. A new contract was under negotiation. Braskem was interested in maintaining the purchases, but PDVSA wanted to renew the credit as well,” the PDVSA source said.
The U.S. Department of the Treasury this week warned banks and other financial institutions from engaging in transactions with Venezuela that could be linked to money laundering or corruption, according to a statement from the Treasury’s Financial Crimes Enforcement Network.
Braskem did not consider the contract meaningful in terms of its volume, according to the source from the Brazilian company. For PDVSA, the loss is significant because it was one of its few for exporting petroleum products amid production declines.
PDVSA’s supply of light virgin naphtha and natural gasoline to Braskem fell during the first half of the year to 7,600 barrels per day (bpd) in June from some 20,000 bpd in January, according to PDVSA’s internal data.
Even though the U.S. sanctions exempt most commercial trade between PDVSA, its refining unit Citgo Petroleum and their customers, banks have grown reluctant to extend letters of credit needed for some oil shipments.
Traders are trying to cut their credit exposure to Venezuela by demanding to be prepaid when selling cargoes to PDVSA. As a result, the oil company is being forced to renegotiate some of its long-term trade agreements to change payment terms.
The country also is looking to walk away from an international trade highly focused on the U.S. dollar, Maduro said this month, instead trying to receive India’s rupees, Russia’s rubles and China’s yuan.
Venezuela’s Petroleum Ministry last week published the price of its oil basket in yuan for the first time.
Reporting by Marianna Parraga in Houston and Tatiana Bautzer in Sao Paulo; Editing by Gary McWilliams