By Kimberley Kao
Chinese oil stocks weakened after the U.S. ousted Venezuelan President Nicolás Maduro over the weekend, raising concerns it could limit China's access to oil.
"Small and large Chinese refineries have for while been buying deeply discounted oil" from Venezuela which has faced U.S. sanctions, said Ole Hansen, head of commodity strategy at Saxo.
Any potential sanctions relief would mean that China will have to either pay market rates, which will erode profits, or source their crude elsewhere, Hansen said.
Although Venezuela is a relatively small supplier of China's oil imports, Vishnu Varathan, managing director at Mizuho Securities said: "Denying China access to Venezuelan oil has accentuates China's energy-shipping risks."
He noted that all other Chinese crude imports have to pass through shipping lanes that could be potential choke points, such as the Straits of Malacca.
"China's oil stocks are underperforming today largely due to sentiment and structural concerns, rather than any single headline risk," said Priyanka Sachdeva, senior market analyst at Phillip Nova.
Hong Kong-listed shares of Cnooc and Sinopec were down 3.5% and 2.1% respectively. PetroChina fell 3.3%.
Oil markets are expected to be in surplus this year, and Venezuelan supply could pressure prices lower, "even as there is uncertainty around whether and how quickly Venezuela may be able to ramp up oil production and also regime stability," said Michael Wan, senior currency analyst at MUFG.
This supply backdrop, coupled with soft Chinese oil demand, weighs more on Chinese oil equities compared to Japan and South Korea, "where energy companies tend to have stronger balance sheets, better downstream integration, and less exposure to domestic margin pressures," Phillip Nova's Sachdeva said.
Energy stocks in other Asian markets were broadly higher.
Japan Petroleum Exploration ended 0.4% higher in Tokyo, after jumping as much as 3.0%. South Korea oil refiners SK Innovation and S-Oil rose 2.8% and 5.35%, respectively.
Oil futures were trading in a tight range on Monday, swinging between gains and losses.
The Venezuela crisis is unlikely to move the needle for oil prices, because "after years of sanctions and neglect to its oil infrastructure, Venezuela is no longer a major oil producer," said UOB Global Economics & Markets Research team in a note.
"Venezuela may drive short-term caution, but it doesn't alter the market's core belief that ample supply and subdued demand will cap upside for oil prices into 2026," Phillip Nova's Sachdeva said.
Write to Kimberley Kao at kimberley.kao@wsj.com
(END) Dow Jones Newswires
01-05-26 0259ET
