Overview
U.S. refiners are preparing to absorb new supplies of heavy Venezuelan crude, a development that is expected to reduce the country's need for imported fuel oil this year. With more heavy barrels entering global commerce following Washington's control of Venezuelan oil reserves, complex refineries on the U.S. Gulf Coast - those configured to run heavier slates and equipped with secondary upgrading units - stand to produce more residual fuel internally and convert it into higher-value products such as gasoline and diesel.
How additional Venezuelan barrels change refinery economics
About 50 million barrels of Venezuelan crude have been designated to enter global trade after U.S. President Donald Trump took control of the South American country's oil. As those barrels arrive, several large U.S. refiners have already purchased cargoes. The availability of heavy Venezuelan crude allows refiners to generate the residual products they previously purchased on the open market, reducing the need to import high-sulfur fuel oil and blendstocks as refinery feed.
"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," said Gregory Battenfield, crude and refined products broker at International Trans Oil Energy.
Analysts at Energy Aspects estimate U.S. Gulf Coast refiners could absorb an additional 600,000 barrels per day of Venezuelan crude, bringing total Venezuelan throughput capacity on the Gulf Coast to about 700,000 barrels per day and potentially allowing existing exports to be fully redirected into U.S. refineries.
Consequences for Atlantic Basin fuel oil markets
A decline in U.S. demand for imported fuel oil would free up barrels for other markets and is expected to put downward pressure on fuel oil prices across the Atlantic as supply increases. Traders say U.S. Gulf Coast refineries capable of processing Venezuelan crude could scale back imports of fuel oil from other suppliers, including Iraq, which has supplied significant volumes in recent years.
A Europe-based fuel oil trading source commented that U.S. refiners running Venezuelan crude "could reduce imports of Iraqi fuel oil, weighing on fuel oil cracks in Europe," referring to the spread between fuel oil futures and crude futures. Data from Kpler show U.S. Gulf Coast fuel oil imports from Iraq rose nearly nine-fold between 2019 and 2025, increasing to roughly 61,000 barrels per day from about 7,000 barrels per day.
The same Europe-based trading source added: "We expect that once cokers approach full operations, Atlantic Basin HSFO cracks would soften." That shift would reflect greater internal generation of heavy residuals within refiners rather than purchases from international suppliers.
Market evidence of weakening margins
Signs that Atlantic margins for high-sulfur fuel oil are under strain are already visible. High-sulfur fuel oil Amsterdam-Rotterdam-Antwerp (ARA) 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, according to LSEG data.
Implications and outlook
The reappearance of Venezuelan heavy crude in global trade has the potential to reshape feedstock flows into U.S. Gulf Coast refineries and to reduce the United States' reliance on imported high-sulfur fuel oil. This in turn could release volumes onto the Atlantic market, pressuring European fuel oil cracking margins and altering trade patterns for sellers that previously supplied the U.S. These dynamics will depend on how quickly refiners ramp up operations to handle additional heavy crude and fully utilize available upgrading units.
Key takeaways
- Fresh Venezuelan heavy crude is expected to cut U.S. imports of high-sulfur fuel oil by allowing Gulf Coast refiners to produce residual fuel internally.
- U.S. refiners have capacity to absorb substantial additional Venezuelan crude, with analysts citing potential Gulf Coast throughput of about 700,000 barrels per day.
- Lower U.S. import demand will likely free up barrels globally and place downward pressure on European fuel oil cracks.