Thursday, July 13, 2006

Venezuela's Citgo cuts supplies to US petrol stations

Venezuela's Citgo cuts supplies to US petrol stations
By Andy Webb-Vidal in Caracas
Copyright The Financial Times Limited 2006
Published: July 12 2006 21:25 | Last updated: July 12 2006 21:25

Venezuela’s state-owned oil refining subsidiary in the US is to halt petrol distribution to about 1,900 filling stations in the US, although the company denied on Wednesday the decision was motivated by tensions between Caracas and Washington.

Citgo, which is wholly-owned by Petróleos de Venezuela, said the decision to stop supplying gasoline to some 15 per cent of its 13,100 US brand-bearing franchises had been taken for business reasons.

David McCollum, a spokesman for the Houston-based company, said Citgo was buying some of its daily supplies from third parties, rather than from its own refining capacity, so reducing margins.

“We are short [of] about 130,000 barrels a day of gasoline that’s required to meet out customer obligations,” he said. “We have to purchase that on the open market and that places us at a competitive disadvantage.”

A senior Republican aide said: “This decision raises the question of whether Citgo is in fact having problems with its refining capabilities.”

But the timing of the decision by Citgo – which is effectively run by the Venezuelan government – coincides with fresh diplomatic tensions between Venezuela and the US, as well as the start of the summer driving season.

President Hugo Chávez wants to reduce Venezuela’s dependence on the US as its premier market for oil and to divert more to China. Sales of Venezuelan oil to the US fell 6 per cent to 178m barrels in the first four months of this year, from 190m barrels in the same period last year.

Venezuela is the world’s fifth-largest oil exporter and it currently ships 1.5m b/d, about 60 per cent of its output, to the US.

Venezuelan exports of oil to China have risen from about 14,000 b/d in 2004 to 80,000 b/d last year. Mr Chávez said recently that Venezuela should be sending 300,000 b/d to the Asian country.

Mr Chávez has threatened to “cut off” oil supplies to the US if the Bush administration continues, as he alleges, to conspire against his self-described “socialist revolution”.

The threats prompted Richard Lugar, the Republican chairman of the Senate foreign relations committee, to commission an investigation in December 2004 by the Government Accountability Office. The findings, published last month, warned that a Venezuelan oil “embargo” would lead to an immediate $11 spike in oil prices.

Bernardo Alvarez, Venezuela’s ambassador to the US, said in a letter to Mr Lugar last week that the GAO’s premise that the Venezuelan government would deliberately cut off oil supplies to the US was “absurd”.

However, the decision by Citgo has about 750,000 b/d of refining capacity in the US. Its decision to cease supplying roughly 1,900 branded retail outlets will be completed in March 2007, and it will predominantly affect states in the US mid-west.


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