Shares in major US oil refiners rallied on Monday as the industry priced in a potential opportunity for the refiners to benefit from the Trump administration’s ouster of Venezuelan leader Nicolás Maduro.
Gulf Coast-based Valero Energy Corporation (VLO) led the way up, gaining more than 10%. Marathon Petroleum Corporation (MPC), the largest refiner in the US by volume, and fellow refining major Phillips 66 (PSX) picked up around 7% each.
While Venezuela sits on the largest proved oil reserves in the world, widely estimated at around 300 billion barrels’ worth, the majority of that oil is a heavy, more sulfurous or “sour” oil. Heavy sour oil tends to trade at a discount to lighter, “sweeter” oil like the international pricing benchmark Brent crude or the US’s West Texas Intermediate (WTI) because it requires more complex technology — and therefore more capital — to refine into usable products.
For refiners, the prospect of a large supply of cheap heavy oil could be a boon.
Partly because the US sits primarily on light sweet oil, the American refinery complex, especially around the high-volume Gulf Coast, is designed to handle heavy sour oil like that from Venezuela and process it into products like bitumen for road surfacing or industrial fuels like diesel and jet fuel.
Light sweet oil makes up more than three-quarters of US exports, due to its ubiquity throughout the States. Conversely, heavy sour oil makes up roughly 60% of imports. Right now, the majority of those heavy sour imports come from Canada, which has large reserves of bitumen oil.
While some of Canada’s oil goes to the Gulf Coast on the other end of the US, much of it goes to the American Midwest, saving money on a shorter pipeline trip. A cheap, reliable source of heavy sour crude from Venezuela, in geographical proximity to the Gulf Coast refinery infrastructure, creates a strong business opportunity for refiners such as Valero.
Venezuelan oil, if controlled by the US industry, would also likely be cheaper than what the US buys from its northern neighbor.
Right now, somewhere around 80% of Venezuela’s oil goes to China, which takes advantage of cheap pricing on Venezuelan barrels due to their steep risk premium. On paper, China has not bought any oil from Venezuela since the first quarter of 2024, but in reality, the oil has just been transported and obscured through the so-called “dark fleet” to independent, or “teapot,” Chinese refiners, all of which adds cost.
If the US maintains its goal of orchestrating the Venezuelan oil industry, much of that oil will likely flow to China instead of the US Gulf Coast, said Carlos Bellorin, executive vice president of energy trends and analysis at Welligence.
China, meanwhile, will look to other suppliers of oil being sold at a steep risk-premium discount, such as Russian Urals-grade oil or Iran’s “Iran Heavy” oil, Bellorin told Yahoo Finance.
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