Analysis: Venezuela Oil Boon to U.S., Bane to Glut


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- The ouster of Venezuelan President Nicolas Maduro is 
creating a multi-faceted outcome for energy markets, with U.S. refiners looking 
poised to benefit from cheaper, assured crude supply from a country now under 
their government's oversight -- even if the global oil glut grows.

   Good News for U.S. Refiners

   The U.S. capture of Maduro and its intent to immediately take control of 30 
million to 50 million bbl of Venezuelan oil could be a boon to refiners in the 
U.S. Gulf Coast, whose plants were specifically designed for the South American 
country's Merey crude.

   In the 2000s, half of Venezuelan oil exports went to the U.S. After flows 
ebbed from 2015 onwards, refiners switched to more expensive grades of heavy, 
sour crude oil, sourcing alternatives from, among others, Mexico, Colombia, 
Saudi Arabia, and Canada.

   Aging oil fields in Colombia, Ecuador and Mexico have translated into 
declining production in recent years. Mexican state refiner Pemex's plans to 
produce more fuel domestically to reduce the country's reliance on imports from 
the U.S. have the potential to further limit the supply of heavy sour crude 
oil, should often delayed and problem-riddled refining projects like Dos Bocas 
get off the ground.

   While new pipeline infrastructure allowed Gulf Coast refiners easier access 
to Canadian crude oil, West Coast refiners had to until recently rely on more 
expensive imports to supplement their Alaskan-crude-heavy diet.

   Aside from Gulf Coast refiners, those in the Midwest would also indirectly 
benefit from revived flows of Merey crude, given the prospect of steeper 
discounts for Canadian crude which will be competing with the higher imports 
from Venezuela.

   Mixed Prospects for Supply

   U.S. President Donald Trump has spoken of massive reinvestments into 
Venezuela's decrepit infrastructure to revive oil production. The prospect of 
faster growing crude oil production in an already saturated market has added to 
oversupply woes.

   The bearish sentiment, however, has been limited by the reality on the 
ground in Venezuela. A revival of crude production will require years of work 
and billions of dollars in investment, along with political stability and 
security for oil workers. So far, most oil majors have remained reluctant to 
signal interest in such an endeavor. Tapping into Venezuela's vast crude oil 
reserves -- at more than 300 billion bbl the largest in the world -- won't go 
without a hitch.

   Venezuela, a founding member of the Organization of the Petroleum Exporting 
Countries, in its heyday in the late 1990s produced 3.45 million bpd of mostly 
heavy, sulfur rich crude oil.  Output was stable around 2.35 million bpd in the 
years preceding the U.S. shale boom.

   But the oil price crash of the mid 2010s and consequent lack of revenues and 
reinvestment, along with mismanagement and the diversion of funds, led 
Venezuelan crude production to plummet below 1 million bpd by 2019.

   Production has gradually increased since troughing at 280,000 bpd during the 
height of the pandemic-induced demand crash in mid-2020. In 2025, production 
averaged 937,000 bpd, according to Platts' OPEC production survey.

   The end of the U.S. oil tanker embargo will likely mean a return of recently 
shut production. At the same time, a new, cheaper and closer source of diluents 
in the U.S. Gulf Coast, necessary to pipe sludgy Venezuelan crude oil, can 
provide another small boost.

   Experts, however, remain skeptical about production returning anywhere close 
to pre-2015 levels in the next few years, given the desolate state of the 
country's oil infrastructure.

   Outlook

   A rapid growth in crude supply would pressure prices to a level low enough 
to stymie production in regions with higher break-evens, but overall still 
contribute to the global crude oil overhang, which the International Energy 
Agency forecasts to be around 3.8 million bpd in 2026.

   The past year saw a growing divergence between crude oil and petroleum fuel 
prices. Even before OPEC in April decided to gradually return curtailed 
production, supply additions from outside the group were set to outpace demand 
growth.

   Refining capacity in the U.S. and Europe is set to continue to shrink, and 
capacity additions elsewhere are far slower than expected crude oil supply 
growth. The return of Venezuelan crude oil is likely to add to this trend, 
which in the third quarter of 2025 led to the highest refining margins in years.




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