Venezuelan Oil Deal May Not Lower Gas Prices as Expected

The US has secured majority control over Venezuelan oil fields containing more than 65 billion barrels of oil, but this may not translate directly into lower gasoline prices for American consumers.

The deal gives the US access to a significant oil resource, with Venezuela's heavy crude being particularly well suited to the refineries lining the US Gulf Coast. However, the effect on gasoline prices will depend on how much additional Venezuelan crude can actually be produced and where those barrels go.

Rystad estimates that getting substantially beyond the current production level of 1.25 million bpd will require more drilling, extensive workovers, improved infrastructure, reliable access to diluents, and significantly more drilling rigs. The US currently imports around 637,000 bpd from Venezuela, with those barrels becoming more useful due to the disrupted crude and heavy fuel oil flows from the Middle East.

The Gulf Coast refineries have spent decades building facilities capable of processing heavy, high-sulfur crude from Venezuela, Mexico, and Canada. Venezuelan production is expected to focus on heavy and extra-heavy crude and bitumen, which will give Gulf Coast refiners a growing source of the heavy feedstock their most complex equipment was built to process.

The current constraint on gasoline prices is refining capacity, with US refinery utilization reaching 97.4% in August. Venezuelan barrels can replace more expensive or less readily available heavy feedstock and improve refinery economics, but replacing one crude barrel with another doesn't add processing capacity.