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CITGO Feels Effect of U.S. Sanctions Against Venezuela

Credit squeeze makes it harder for refiner to purchase crude

HOUSTON -- Recent sanctions by the United States against Venezuela and Petroleos de Venezuela SA (PDVSA), its state-run oil company, over civil-rights abuses have started to take a toll on CITGO Petroleum Corp., according to a Reuters report.

CITGO, based in Houston, is a refiner, transporter and marketer of transportation fuels owned by CITGO Holding Inc., a subsidiary of PDVSA. Through CITGO, the Venezuelan government is the largest foreign owner of U.S. domestic refinery capacity. It owns three U.S. refineries (in Texas, Louisiana and Illinois) and a large network of pipelines and terminals across 24 states. The refineries account for about 4% of domestic fuel capacity and are major suppliers of gasoline, diesel and jet fuel.

Independent CITGO-branded retail marketers sell motor fuels through approximately 6,000 gas stations and convenience stores in 30 states.

The sanctions are making it harder for the refiner to obtain the credit it needs to purchase crude oil, six traders and banking sources told the news agency. Fewer oil providers are willing to sell cargo to CITGO on open credit, instead requiring prepayment or bank letters of credit to supply its 749,000-barrel-per-day refining network, the sources said.

CITGO had remained immune from its parent’s straits until this year, the report said. But U.S. sanctions levied in recent months against Venezuelan officials, PDVSA executives and the country’s debt issuance have deterred banks and suppliers from extending even routine credit, the sources said.

If financial troubles raise the cost of obtaining crude oil, its profits would be squeezed, making the company less competitive, said Reuters.

Two sources at Canadian suppliers said their companies are no longer allowed to trade with CITGO directly and have begun selling cargoes through third parties to avoid the credit risk.

CITGO is “trying to renegotiate its supply terms,” said a trader from a firm that is requiring CITGO to prepay for purchases. The company is worried about a higher debt default risk as well as the sanctions.

While CITGO was not directly sanctioned in August, it was barred by name from transferring dividends or distributing profits to PDVSA or the Venezuelan government. CITGO has provided nearly $2.5 billion in dividends to its parent company since 2015, according to the report, citing Fitch Ratings.

CITGO declined comment to Reuters.

Meanwhile, Venezuela has offered Russia’s state-run Rosneft oil company nearly half the shares in CITGO as collateral for the $1.5 billion Rosneft loaned Venezuela in 2016 as the country’s current economic crisis was beginning, The Wall Street Journal reported at the end of August.

The Trump administration is ready to block Rosneft from gaining control of critical energy assets in the United States, the report said. Should Rosneft attempt to take the CITGO shares as collateral, the White House has the authority to deem it a violation of national security and stop the transaction, senior U.S. officials told the newspaper on condition of anonymity.

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