Pre-payment demand is aimed at eliminating payment defaults

Venezuela’s state-owned oil firm, PDVSA is demanding prepayment for its oil as the company tightens its prepayment rules.

This follows a review of oil contracts, resulting in PDVSA demanding that oil cargoes be paid in cash or in goods and services before loadings can take place. Reuters is reporting that it has seen documents quoting PDVSA’s new prepayment demands.

The new prepayment rules come shortly after the Biden Administration eased part of the sanctions imposed on Venezuela, initially implemented by by former US President Donald Trump, including granting US super-major Chevron a six-month licence. This licence has allowed Chevron to import some Venezuelan crude oil to the United States for sale to US refiners.

Crude oil exports were suspended

Chevron is the only American company still operating in Venezuela. Earlier this month, PDVSA suspended most of its crude oil exports and some fuel exports for a review of the contractual terms, a review that was to be conducted under the new head of the company, Pedro Rafael Tellechea.

The review of the contracts under Tellechea – appointed by Venezuelan President Nicolas Maduro in early January – was aimed at making sure there would be no payment defaults. Since the imposition of US sanctions on trade in Venezuela, PDVSA has had to resort to middlemen to market its oil, which has created complications with payments.

Under these tougher rules, even long-term buyers of Venezuela’s oil should follow the new rules of pre-payment, which state that PDVSA will have to receive the payment in full by cash before releasing oil for loading on tankers. Earlier this month, reports had it that Chevron had recently sold 500,000 barrels of heavy Hamaca grade to US refiner Phillips 66 to be used in its Sweeny, Texas, refinery, anonymous sources told Bloomberg.

Venezuela’s heavy crude oil is prized by US refiners, who, until recently, looked to Russia’s heavy crude to replace it. In December, it was reported that several refiners were hitting up Chevron to get their hands on the rare Venezuelan crude oil.