By Matthew Robinson - Analysis
NEW YORK (Reuters) - Venezuela’s decision to cut off oil shipments to Exxon Mobil Corp as part of an escalating legal battle should have little impact on U.S. supplies or on the giant energy company.
The OPEC nation announced the embargo late Tuesday after the largest U.S. company won court orders to freeze $12 billion in Venezuelan assets as Exxon seeks compensation following the nationalization of an oil project last year.
But experts say Exxon Mobil should easily be able to find crude to make up the losses and said any oil denied the company will likely end up on U.S. shores anyway as the world’s top consumer is by far the closest major market.
“This has very little impact on actual production. Crude stocks are high. Exxon can get their crude from almost anyone. What is Venezuela going to do?” said Kyle Cooper, Energy Futures Research, IAF Advisors in Houston, Texas.
Exxon imported about 90,000 barrels per day (bpd) of crude from Venezuela in November, excluding volumes shipped to the Chalmette refining joint venture with PDVSA, which appears to be exempt from the sales halt.
Analysts said PDVSA could be forced to sell the crude to third-party traders at a discount, who would then offer the crude to U.S. refiners -- including Exxon.
“If they have to sell to middlemen, Exxon may end up getting a sweeter deal -- even with the mark-up,” said Rob Kurzatkowski, futures analyst with optionsXpress.
“I think this is more Chavez flexing his muscles and showing people he is tough.”
While the economies of the two nations are linked -- the United States buys the majority of Venezuela’s exports to meet around 11 percent daily U.S. imports -- relations between Washington and Caracas have been strained since President Hugo Chavez won office.
Chavez, who says the Bush administration has plotted to overthrow him to grab Venezuela’s oil fields, threatened to cut all exports to the United States over the Exxon dispute.
Experts said the Chavez government’s dependence on oil revenue to fund social programs will likely prevent the fiery populist from carrying out that threat.
“Venezuela doesn’t want to halt sales because Chavez needs the revenue,” said Eric Wittenauer, analyst at AG Edwards.
“Ultimately, crude oil is a fungible product; Venezuela’s crude will still be on the global market and the U.S. will find oil from other sources.”
In addition, Venezuela’s heavy oil needs to be processed by complex refineries -- most of which are concentrated along the U.S. Gulf Coast.
Any shortages would be met with additional supplies from countries which produce extra heavy crude, like Canada and Saudi Arabia, analysts said.
“It looks like Exxon Mobil can pretty much buy from others the same oil Venezuela is denying it,” said Mark Waggoner, president of Excel Futures.
Additional reporting by Timothy Gardner, Janet McGurty, Gene Ramos and Haitham Haddadin in New York, editing by Matthew Lewis