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Venezuelan Oil Sits, Waits for LC
Further to coverage in DCW’s Jul/Aug issue (“Venezuelan Oil Sits, Waits for LC”), Reuters reports that the Karvounis tanker which had been moored in the US Gulf for over one month discharged a portion of its 1m barrel cargo on 23 Aug in New Orleans. Unable to obtain an LC for its purchase, buyer PBF Energy agreed to a prepayment, according to a trader familiar with the situation as reported by Reuters.
It is common practice for oil traders to buy and sell tanker-loads of crude oil after the vessel has loaded and before it arrives at the expected port of discharge. The trades are often covered with standby LCs that are only open for a very short time and contain a clause stating that they will be reduced by the amount of payment made by the applicant, through the issuing bank, to the beneficiary, citing the LC number. With oil at USD 50 a barrel, these LCs can be between 25-100 million USD each. The intent is that the buyer will pay by wire transfer as soon as the vessel discharges—the LC will only be drawn on if the buyer fails to make the wire transfer
As of this time, status of the balance of the cargo is not known. US sanctions imposed in July against 13 Venezuelan officials, including PDVSA finance vice president Simon Zerpa, have hampered oil deals. China National Petroleum Corporation has reduced funding certain operations at its joint venture in Venezuela, a PDVSA source told Reuters.
To follow this developing story, as well as keep up with news relating to standbys, LCs, guarantees, trade based financial crime, and more, subscribe to DCW.