Return of Venezuelan crude could cut US fuel oil imports

By Anushree Mukherjee and Enes Tunagur

BENGALURU/LONDON Jan 27 (Reuters) – U.S. demand for imported fuel oil is set to fall this year as refiners snap up new flows of heavy Venezuelan crude, yielding more domestically produced fuel oil that can be ‍processed into higher-value products such as gasoline and diesel.

The ouster of Venezuelan President Nicolas Maduro in early January is expected to shift global oil flows as more supply from the South American country enters the market. This is creating new opportunities for complex U.S. refiners, particularly on the Gulf Coast, which have plants configured to run heavier crude slates and equipped with secondary units to upgrade the ‌fuel oil they produce.

Some of the additional 50 million Venezuelan barrels are ‌set to enter global trade after U.S. President Donald Trump took control of the South American country’s oil.

Refiners Valero and Phillips 66  have already bought cargoes of Venezuelan crude, Reuters reported last week, as part of Washington’s agreement with Caracas to export the 50 million barrels.

“If more Venezuelan heavy ​barrels land on the USGC, you’ll likely see less need to import high-sulfur fuel oil and blendstocks as refinery feed, because refiners can generate that residual product internally from crude ‍instead of buying it in, so it’s generally bearish for ​imported fuel oil demand into the Gulf,” Gregory Battenfield, crude and ​refined products broker at International Trans Oil Energy, said.

Refining analysts at Energy Aspects said in a ‍recent report that U.S. Gulf Coast refiners could absorb an additional 600,000 barrels per day of Venezuelan crude, bringing the total to 700,000 bpd and allowing for a full redirection of current exports.

RIPPLE EFFECT ON EUROPEAN FUEL OIL MARKETS

A drop in U.S. demand for imported fuel oil will free up more barrels globally, and weigh on prices across the Atlantic as ‍supply increases, traders said.

“U.S. Gulf Coast refineries capable of running Venezuelan crude could reduce imports of Iraqi fuel oil, weighing on fuel oil cracks in Europe,” a Europe-based fuel oil trading source ‍said, referring to the spread ‍between fuel oil futures and crude futures.

Kpler data show U.S. Gulf ​Coast fuel oil imports from Iraq rose nearly nine-fold between 2019 ​and 2025, ⁠climbing to roughly 61,000 bpd from about 7,000 bpd.

“We expect that ‌once cokers approach full operations, Atlantic Basin HSFO cracks would soften,” the Europe-based fuel oil trading source said.

High-sulfur fuel oil Amsterdam-Rotterdam-Antwerp barge cracking margins fell to more than 18-month lows of minus $13.95 a barrel (versus Brent) during the week ended January 16, after averaging minus $9.53 a barrel in December, LSEG data show.

(Reporting by Anushree Mukherjee in Bengaluru, Enes Tunagur in London, Georgina McCartney in Houston. Editing by Liz ⁠Hampton and Mark Potter)