Shares in major U.S. oil refiners experienced a significant surge on Monday, reflecting optimism among investors regarding a potential shift in oil supply dynamics following the Trump administration’s efforts to displace Venezuelan leader Nicolás Maduro. Valero Energy Corporation (VLO), based in the Gulf Coast, led the rally with an impressive gain of over 10%. Other key players, such as Marathon Petroleum Corporation (MPC), the largest U.S. refiner by volume, and Phillips 66 (PSX), each saw stock prices rise by approximately 7%.
Venezuela is home to the world’s largest proved oil reserves, estimated at around 300 billion barrels. However, the bulk of this crude is classified as heavy sour oil, which typically trades at a discount compared to lighter, sweeter oils like Brent crude and West Texas Intermediate (WTI). This discount arises from the complexities and higher costs associated with refining heavy sour oil into usable products. For American refiners, the ability to access a substantial supply of inexpensive heavy oil presents a lucrative opportunity.
The U.S. refining capacity, particularly along the Gulf Coast, is predominantly designed to process heavier sour crudes, converting them into various products including industrial fuels and bitumen for road surfacing. Notably, over three-quarters of U.S. oil exports are light sweet crude, whereas heavy sour oil constitutes about 60% of U.S. imports. Currently, a significant portion of these imports is sourced from Canada, which has extensive reserves of bitumen oil. While some of this Canadian oil reaches the Gulf Coast, much of it is processed in the American Midwest, optimizing transportation costs through shorter pipeline routes.
The potential for a reliable and affordable source of Venezuelan heavy sour crude, situated near the Gulf Coast refining infrastructure, creates an enticing business scenario for refiners like Valero. Should U.S. control over Venezuelan oil materialize, the refiners would likely find this oil cheaper than the current imports from Canada.
At present, around 80% of Venezuela’s oil is directed toward China, which benefits from low prices on Venezuelan barrels, albeit at a high risk premium due to geopolitical tensions. Although China has not officially imported Venezuelan oil since early 2024, much of it has reportedly been routed through a clandestine network known as the “dark fleet,” reaching independent Chinese refiners at an elevated cost.
Carlos Bellorin, the executive vice president of energy trends and analysis at Welligence, indicated that if U.S. efforts to reshape the Venezuelan oil industry continue, the flow of oil is likely to favor China, thereby diverting it from the U.S. Gulf Coast. Meanwhile, China may shift its focus to other suppliers offering steeply discounted oil, such as Russian Urals-grade or Iran’s “Iran Heavy” oil, indicating a potential reshuffling of global oil supply chains.
