Trump policy on Venezuela will be decisive for heavy crude markets

As the removal of Chevron’s waiver to produce oil in Venezuela is becoming increasingly likely, 2025 could see a significant decline in Venezuelan crude supply. Combined with an outlook on lower Mexican and Canadian oil availability, US refiners should brace themselves for tight heavy crude markets this year.

In 2022 and 2023, the Biden administration eased sanctions on Venezuela, tying their duration to the restoration of democratic processes, including fair presidential elections. As part of this policy shift, the US allowed Chevron to resume oil production and exports under a limited license, enabling Chevron to produce approximately 200 kbd of crude in its joint venture with PDVSA in 2024. Consequently, Venezuela's crude and condensate supply increased by nearly 15% y/y in 2024, reaching an average of 910 kbd (+112 kbd y/y)—the highest level since 2019, when oil sanctions were first imposed. Notably, Chevron remains the only US oil producer operating in Venezuela.

Further expansion of Venezuela’s upstream oil industry appears unlikely, given the alleged electoral fraud and suppression of the opposition over the past six months could trigger more US sanctions. On July 28, 2024, Venezuela’s National Electoral Commission declared Maduro the winner with over 51% of the vote, defeating González. However, precinct-level voting tabulations published by the opposition indicated that González actually won with 67%. International election observers reported that the vote was not democratic, and many countries, including the US, Argentina, and Chile, rejected Maduro’s claim to the presidency. Despite a six-month-long election dispute, Nicolás Maduro was inaugurated for a third term just one week ago.

Chevron’s sanction waiver is set to be reviewed by the incoming Trump administration and is likely to face intense scrutiny. There is growing speculation that Chevron may lose its authorization to produce oil in Venezuela, especially after statements from Trump’s secretary of state nominee, Marco Rubio, who has taken a hardline stance on Venezuela. Rubio criticized the Biden administration, claiming it “got played” in negotiations with Maduro. As a result, we forecast that under Trump, Venezuelan oil supply could face significant declines, dropping from initial levels of 830 kbd to 670 kbd in 2025, which would be equivalent to a 26% y/y decline (see chart).

Scenarios: Venezuela crude supply, kbd

Source: Kpler

This development will significantly disrupt heavy crude markets in the Americas. After Mexico, Venezuela is the primary crude supplier to PADD-3, where major refineries such as Valero St. Charles, Chevron Pascagoula, and Valero Port Arthur process heavy sour crude volumes. Venezuelan crude exports to the USGC even climbed to six-year highs in December, reaching almost 300 kbd, 150 kbd higher y/y.  

If Venezuelan crude supply to the US declines by 200 kbd in 2025, the USGC would face a severe shortage of heavy crude. This shortfall would be compounded by limited Mexican crude availability (due to lower production and increased domestic demand) and potentially reduced Canadian oil inflows amid the imposition of tariffs on Canadian imports. Such circumstances could create a backfill requirement of 200-500 kbd for US refiners, with grades from Colombia or Ecuador only partially able to replace these volumes.

Moreover, a waiver removal would also imply a loss of USGC naphtha flows (50 kbd) to Venezuela for blending purposes (Chevron is importer), potentially pushing PDVSA to replace it with Iranian condensate, a more expensive option.

Crude flows to the USGC, kbd

Source: Kpler
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