Latin America Becomes Key Route for Rerouting Oil Supplies Amid Middle East Crisis
The Middle East crisis has triggered a significant shift in global oil trade, with Latin America emerging as one of the key routes for rerouting supplies. The region's oil trade is being heavily impacted by supply outages and disruptions in the Middle East, particularly in Saudi Arabia.
As a result, medium-density crude is becoming increasingly scarce, leading to higher prices. Alternative sources are few and far between, with Europe facing significant challenges in meeting its demand for medium-density crude. The region's largest field, Johan Sverdrup, is expected to decline by 10% year-on-year in 2026.
Guyana's medium-yielding barrels have been bid up sharply recently due to the scarcity of alternative supplies. Latin America's heavier grades, particularly Venezuelan crude, are becoming increasingly relevant to refiners beyond the region. The US diesel export ban speculation is driving demand for middle distillate cracks, further incentivizing refiners to consume more medium crudes.
Brazil's Vaca Muerta growth has accelerated in recent months, with new pipeline capacity set to ease supply constraints by 2027. Argentina and Guyana are pulling in opposite directions from Brazil, with Guyana's growth expected to accelerate as its latest FPSO comes online. Venezuela remains a wildcard due to the estimated $100 billion of capital needed to lift output to 2 million b/d.