Venezuelan crude could displace Mexican fuel oil amid USGC supply glut: market sources

A potential increase in Venezuelan crude flows to the US Gulf Coast could place downward pressure on fuel oil prices in the region, amid strong competition that might displace product currently arriving from Mexico, according to US-based fuel oil sources.

Mexico and Venezuela both produce heavy crudes with plenty of residual fuel oil, the base for high sulfur fuel oil.

"If refiners are able to purchase sufficient quantities of Venezuelan crude oil to process in their refineries and fill up their cokers, that really means that Mexico would probably have to look at markets outside of this hemisphere to place their oil," a US-based fuel oil trader said.

Another USGC fuel oil source said: "I think it [more Venezuelan product] will come here and weaken our market."

The USGC high sulfur fuel oil crack swap weakened 85 cents from Jan. 2 to minus $10.60/b on Jan. 5, the first trading day after the US military removed Venezuelan President Nicolas Maduro. It was its largest day-over-day decline since a 95-cent retreat on Oct. 16, according to data from Platts, part of S&P Global Energy.

At the same time, the outright price for the USGC February swap moved up only 5 cents from Jan. 2 to $50.75/b on Jan. 5, in sharp contrast with the 98 cents/b rally experienced by the underlying prompt-month ICE Brent crude futures contract, which ended at $61.77/b.

Market participants have pointed to the imports of Mexican barrels as a bearish factor for HSFO on the USGC. "Higher Mexican runs and fuel oil exports, and less bitumen demand in the USA," said a fuel oil trader to explain the current environment of supply glut in the USGC market.

Platts assessed bulk USGC HSFO at $47.13/b on Dec. 16, the product's lowest assessed level since it closed at $45.09/b on Jan. 4, 2021.

USGC fuel oil imports from Mexico increased to 615,000 metric tons in December from 438,000 mt in November, a monthly high for 2025, according to Kpler shipping data. However, Mexican supply to the region fell 27% to 4.675 million mt in 2025, compared with 6.412 million mt in 2024.

Nonetheless, the second fuel oil trader said barrels from Venezuela might also be exported to other regions to try to preserve pricing levels on the USGC.

It remains unclear whether Venezuela will export more crude or other oil products to the US, as the current US "quarantine" on Venezuelan oil exports on sanctioned tankers remains in place, said Jim Burkhard, vice president and head of research for oil markets at S&P Global Energy CERA.