Exclusive: PBF's split with PDVSA grows as U.S. refiner halts direct deals

By Marianna Parraga

HOUSTON (Reuters) - The fifth largest U.S. buyer of Venezuelan crude, PBF Energy Inc, has halted direct purchases from state-run oil company PDVSA, according to four sources, deepening a rift amid sanctions on the OPEC-member country.

PBF is the second buyer in as many months to go elsewhere for its oil and further disagreements could spell new hardships for PDVSA, which owes bondholders $1.2 billion in debt payments due this month. Venezuela relies on oil for over 90 percent of export revenue and U.S. refiners are among its largest cash-paying customers.

In August, the Trump administration imposed sanctions on Venezuela, in part barring new financial arrangements with PDVSA. Those restrictions have banks refusing to issue letters of credit needed to assure some oil sales.

PBF notified PDVSA last month it "is not going to take any more Venezuelan crude cargoes" from the state-run firm, said a PDVSA source who could not be identified because the information was not public.

That notification came after a more than 40-day standoff over a previous shipment. In July, a Venezuelan heavy oil cargo intended for PBF sat off Louisiana awaiting a letter of credit to complete the sale. The tanker discharged in August.

Neither company would say whether the agreement is terminated. The Parsippany, New Jersey-based refiner declined to comment on "business confidential information." PDVSA did not respond to a request for comment.

PBF has not directly purchased oil from PDVSA since early September, according to Thomson Reuters trade flows data. But the refiner has bought Venezuelan crude from intermediaries in recent months, the data say.

Intermediaries currently working with Venezuela are traders and oil firms who purchase crude from PDVSA and assume the risk of any default in a transfer.

PBF also has increased imports of heavy oil from other nations, including Colombia.

The tanker Gold Sun arrived in Venezuela's Jose port this week to load crude for PBF. Reuters trade flow data has not yet disclosed further details about the shipment.

PBF typically buys at least two 500,000-barrel cargoes per month from PDVSA, and through September was the fifth U.S. largest importer of Venezuelan oil, receiving almost 52,000 barrels per day (bpd) from different suppliers, according to the Reuters data.

For a graphic on Venezuela's crude exports to the United States, click on http://tmsnrt.rs/2kGkwJK

A STRUGGLE TO KEEP CUSTOMERS

In September, PDVSA also lost a supply contract for naphtha and natural gasoline to Brazilian petrochemical firm Braskem SA .

Falling output and oil-quality issues have contributed to PDVSA's struggles to retain customers, and the situation worsened once its name appeared in a U.S. sanctions list.

The sanctions imposed in August do not stop U.S. entities from continuing trade relationships with PDVSA, but they ban new long-term financing for the company, its subsidiaries and the Venezuelan government. They also require business partners to notify the Department of Treasury about certain transactions.

The heightened level of scrutiny has not been welcome by U.S. refiners, according to the trading sources.

Venezuela in September sent less than 500,000 bpd of crude to the United States, its main destination for oil exports. The volume marked a 38 percent decline compared with the same month in 2016, according to the Reuters data.

The South American country has been looking for new buyers for its barrels since sanctions began, according to officials including President Nicolas Maduro. It recently started posting its crude prices in Chinese yuan, aiming to build a "currencies basket" to untangle banking operations and move off U.S. dollar-based sales.

BETTER WITHOUT YOU

As PDVSA tries to expand its portfolio of customers, PBF and other U.S. refiners are looking elsewhere, too. Separate from its 33,000-bpd contract with PDVSA, PBF has started buying Venezuelan crude from trading firms, while negotiating with PDVSA over other forms of payment, according to the data and sources.

Eulogio Del Pino, Venezuela's oil minister, said on state television in August that PBF "are the ones who have to pay ahead of time if they want us to load."

PDVSA's insistence that PBF prepay for cargoes hamstrung negotiations, the PDVSA source and one of the traders said, while the refiner suggested an open credit mechanism that would allow it to pay at least 30 days after delivery.

"There's no reason for PDVSA to start demanding prepayments other than retaliation for the sanctions and lack of cash, but those problems should not be transferred to the buyers," one trader said.

PBF has sought alternatives to Venezuela's heavy crude oil to meet its refineries' feedstock requirements. In September, it bought from Royal Dutch Shell a cargo of Colombia's PB19 crude, a grade that is rarely sold on the export market, according to the Reuters data.

Disruptions in imports from Venezuela also have affected Phillips 66, the firm said in August. PDVSA's supply to the U.S. refiner's Sweeny facility in Texas has dropped by more than two thirds this year in part due to oil quality issues forcing the firm to cancel cargoes and request price discounts.

Phillips 66 has increased purchases of other Latin American heavy crudes for Sweeny in recent months, including Colombian, Mexican and Ecuadorian grades, according to Reuters data.

(Reporting by Marianna Parraga in Houston, with additional reporting by Bryan Sims; Editing by Gary McWilliams and Marguerita Choy)