More than eight million barrels of Venezuelan crude oil is sitting in tankers as U.S. sanctions are preventing the country from selling the commodity worth about half a billion dollars, Bloomberg reports, adding this is happening amid dwindling heavy crude supply globally that has seen the traditional premium of light crude to heavy dissipate.

The cargoes, distributed among 16 tankers off the Venezuelan coast, hold crude oil belonging to PDVSA but also to Chevron, Valero Energy, and Rosneft: all PDVSA partners in production joint ventures. The crude had to be moved to tankers, sources told Bloomberg, to clear up storage space at the JVs upgraders that convert the heavy crude into liquid that can be utilized in refineries.

Even with the move, the upgraders are operating at reduced production rates with buyers for the backlog few and far between. This coincides with OPEC cutting heavy oil production specifically as part of its agreement to prop up prices again. Canada, for its part, is still struggling with lack of export infrastructure and curbing production to maintain a reasonable price level for its heavy crude. As a consequence, the global supply of heavy crude is dwindling faster than perhaps expected.

For now it is resulting in price anomalies, but it could create an actual shortage of heavy crude as demand for these grades picks up later this year, ahead of the January 2020 entry into effect of the new lower-sulfur emission rules of the International maritime Organization.

Meanwhile, the discount of heavy crude to benchmarks has narrowed significantly, and it’s not impossible that it might become a premium at some point: Bloomberg notes that Colombia’s heavy crude blend Castilla for delivery next month traded at just US$4 per barrel below Brent. This compares with a discount of US$9.80 per barrel for February cargoes.

By Irina Slav for Oilprice.com

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