Venezuela’s heavy oil and its history with US refineries

With Venezuela the top global news story after Donald Trump's intervention to seize President Nicolas Maduro, energy markets are considering the potential for renewed supply from a fallen crude-oil superpower.

The Venezuelan and US energy industries are historically intertwined, and this is related to the interesting mismatch between American domestic output and refining capacity. Gulf Coast facilities were built specifically to refine high-sulfur "heavy" Venezuelan crude shipped across the Caribbean in the days before US energy independence.

These complex refineries were expensive to develop but had a strategic advantage once built: they could buy "heavy" Venezuelan crude at a discount and profitably refine it. Venezuelan heavy crude was particularly appropriate for making diesel. (The "light" crude from the US shale boom is relatively more suited to refining gasoline.)

We've charted the long-term spread between diesel and gasoline prices in the US against oil imports from Venezuela. As mismanagement and falling production crippled Venezuela's exports, US diesel prices became steadily more volatile from the mid-2000s. This trend became even more pronounced after Donald Trump's first administration imposed sanctions that cut Venezuelan imports to a trickle from 2019.

(The Houston refineries often turned to Canadian heavy crude instead, though this was not a 100% comparable replacement.)

Our subsequent charts consider Venezuela's place in the global oil landscape. According to OPEC figures, the nation sits atop more than 300 billion barrels of proven oil reserves (accounting for nearly 20% of the global total), yet its daily production hovers at about 960,000 barrels -- less than 1% of the global share and about a quarter of Venezuela's output level in 1970.

The first Trump term's sanctions also changed the composition of Venezuela's non-US customers. As our fifth chart shows, demand from the Americas almost disappeared. China became a more important export market for Venezuela from about 2017. India was an important buyer, especially in 2019, but no longer (likely due to its focus on buying Russian discounted crude.)

Gains by "Other Asia" are especially notable; this category contains Malaysia, which has been an important transhipment hub for Iranian and Venezuelan crude to avoid sanctions.

With Caracas under new leadership and Trump vowing to control the nation's oil, all of these trends are subject to change -- but turning Venezuelan output around would require years of expensive infrastructure reconstruction.

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