A million barrels of Venezuelan crude oil are being purchased by Sinochem Corp. of China, an unusual move made to take advantage of Washington’s lifting of sanctions against the South American exporter. The oil will arrive in December.

After Washington lifted sanctions on Venezuela’s gas and oil exports in mid-October for a six-month period, there was a rush of spot fuel and crude deals through middlemen and Western dealers like Vitol and Trafigura.

According to three traders with knowledge of the acquisition, Sinochem has agreed to purchase the cargo of heavy Venezuelan Merey crude at a $11 per barrel discount to dated Brent crude on a delivered ex-ship (DES) basis.

Delivery of the shipment is scheduled for Sinochem’s Changyi refinery, one of three it operates in the refining hub following a state-mandated merger with ChemChina, in the eastern province of Shandong.

“(Sinochem) barely touched Venezuelan oil before, although several of its subsidiary plants are configured to process heavy type of crude oil,” said a trader familiar with its Changyi plant, speaking on condition of anonymity.

The press office of Sinochem sent a statement stating that the company “consistently conducts its operations in strict adherence to legal and regulatory requirements” and declined to comment on speculative trading.

Prior to the relaxation of sanctions, Merey crude was mostly purchased by Chinese independent refiners, who benefited from large price breaks after PetroChina, the state-run giant, stopped purchasing from Caracas in late 2019 to avoid the possibility of more sanctions.

According to senior trading insiders acquainted with the group’s thinking, Sinochem has long refrained from dealing in sanctioned oil out of concern for any negative effect on its larger company.

The $11 discount for Sinochem contrasts with $20 discounts for Merey imports into China during the sanctions era, indicating tightened supply as a result of Venezuela’s stagnating domestic output and rising demand from the US and India.

Cargoes of Venezuelan crude to China were usually marked as coming from Malaysia during the embargo.

According to PDVSA records and LSEG tanker tracking data, Venezuela’s petroleum and crude exports to Asia decreased to roughly 10 million barrels in November from 16.5 million barrels the previous month as a result of the sanctions being lifted, allowing Venezuela to export to any market.

“With the higher prices, margins are thinning for Chinese independent refiners processing Merey,” said a Shandong-based refinery source.

(Adapted from Reuters.com)