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SIMON BROWN: I’m chatting with Casey Sprake, now market strategist at AG Capital. Casey, always appreciate the time. You, I think it was about a week or so ago, had a fascinating article on social media, both on X and on LinkedIn, around Venezuelan oil production. We know around the invasion and the, I don’t know, was it the theft, the arrest, whatever, of the president (Nicolás Maduro)?
But what really stood out was the point that you made and the fact that there are different types of oil and that Venezuelan oil is a heavy, sour crude. It certainly struck me that there are different, not flavours, but different styles of oil. Of course, this means different ways of refining. There’s a whole world of oil types out there.
CASEY SPRAKE: One hundred percent and thank you for having me back on the show again, Simon. I think you’ve really provided great context here. I think it’s important to try and understand that if we look at the whole Venezuelan context, in headline terms, Venezuelan production is quite small. It only contributes roughly 1% of global oil supplies. But as you pointed out, the nuance is that oil markets run on quality as well as quantity.
More than two thirds of Venezuela’s oil output is actually heavy sour crude oil, like you mentioned. It’s that exact segment that is quite structurally tight in the oil market and difficult to replace. In simple terms, the volume is small, but if you look at global heavy crude production, Venezuela contributes around 4.5% to the global total.
SIMON BROWN: And that is starting to become chunky. The key thing is, because I noticed when we first heard the Venezuelan story, crude dropped. I saw it at $59.99 briefly. It’s rallied significantly since then, but that Venezuelan oil can’t be refined in, for example, the Gulf of Mexico because that’s mostly Louisiana with West Texas Intermediate (WTI), which is a light sweet crude. So practically, it can only go to certain markets.
CASEY SPRAKE: Yes, and that’s really it. That heavy crude is not easily substituted. From my understanding, it’s only really Canada, Mexico and Russia that are among the few suppliers capable of producing those similar grades at scale. That’s why this whole situation has blown the way that it has.
SIMON BROWN: That then brings the next part, which you also spoke about in the article, which is around the shadow fleet. I have to say, I thought the shadow fleet was a couple of large tankers that were, I don’t know, in camouflage or something. I hadn’t really thought how it worked. But of course, there was a lot of oil being moved, a lot of it is Russian oil, probably, but a lot of oil that’s actually been moved around the world, but kind of underground moving.
CASEY SPRAKE: Yes, that’s why I found this article so fascinating to research and work on. You hear shadow fleet, you start thinking of a secret navy or some centrally controlled armada. But what it is, in very simple terms, is an informal but highly organised network of ageing tankers, opaque traders, shell company owners and alternative insurers as well. It’s those vessels essentially operating in what we would say is a grey zone.
It’s technically compliant enough to avoid intermediate interdiction in terms of all the sanctions and so on, but it’s structured in such a smart way that it conceals ownership, financing and cargo origin. That’s how we’re seeing all of this sanctioned oil still moving around the globe.
SIMON BROWN: It’s a lot of tankers. This isn’t just a handful because the US took a couple last year, I think it was three or four. My thought was, well, that might be the fleet done. But if the fleet is hundreds of tankers, probably not.
CASEY SPRAKE: No, definitely not at all. There’s a lot of work that needs to be done, hence why this has come into the spotlight. It’s not some small nuanced system. It’s a massive underground structure that is basically keeping oil supplies floating across the globe.
If we look more specifically at Russia, where a lot of this revolves around, this entire system has become indispensable to Russia. It’s basically keeping the war economy running, to put things into scale and scope.
SIMON BROWN: Yeah, absolutely. This is where they’re getting their funding. Another point that you made in the article, which goes back to the sanctions in Venezuela, is that they’ve been in place since 2019 and that China is a dominant customer of Venezuelan oil. That then makes me think, is this part of trade wars too, or is this just the new world that we live in, where everything is complex and interconnected?
CASEY SPRAKE: Honestly, I would say it’s a little bit of both. It is that complicated, that structured in the background, that opaque. But again, it’s only come as a result of the trade wars we’ve seen and the heightened geopolitical environment we’re in. It’s making these types of systems a necessity for the different powers that are facing sanctions.
SIMON BROWN: Yeah, things are happening all over the place and we’re never quite sure what levers are being pulled. But we’ll leave it there. That’s Casey Sprake, market strategist at AG Capital. You can follow her on LinkedIn and X.
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