Naphtha Gains Most From Lifting of Sanctions on Venezuelan Crude Oil
On Jan. 5, the U.S. launched an operation to take the then Venezuelan President, Nicolas Maduro, into custody. It also began to exert greater control over Venezuela’s energy sector, lifting sanctions on crude oil and refined product exports it imposed in 2019.
Venezuela’s crude oil industry became the focus of attention, amid the investment needed to restore the sector after years of underfunding. Less importance, however, was given to the impact on the refined products market.
Venezuelan crude oil is very thick and so cannot move easily through pipelines on its own. In order for it to flow through pipelines it has to be diluted. The most common way of doing this is by injecting naphtha into the crude oil. When the crude is run through a crude distillation unit, the injected naphtha can then be cut as part of the distillation process. This results in the need for naphtha as a diluent. The higher demand for naphtha as a diluent is expected to have the most immediate effect on global refined products flows from the return of Venezuelan crude.
Given the characteristics of heavy or very heavy crude, Venezuelan or other grades, there are not many refiners that can handle these grades. Many
refineries can handle heavy crude as part of their feedstock slate, but the number that can run very heavy crudes, which are the majority of Venezuelan
crude grades and especially its reserves, are much fewer.
Subsequently, the market for Venezuelan crude oil is a small fraction of the total crude oil market and the impact of the return of Venezuelan crude is, consequently, likely to be limited — at least in the short to medium term.
The return of Venezuelan crude to the oil market may, however, have a greater impact on the refined products sector in the short term by not only boosting demand for naphtha as a diluent but also because it could lead to greater availability of gasoline, jet/kerosene and diesel. Supply of these products could rise because refineries running heavy/very heavy crude need to have a large upgrading capacity to avoid having a high yield of
heavy fuel oil and few other refined products.
And so, those refineries that can offer such an upgrade in capacity could increase their yields of lighter distillates such as gasoline, jet/kerosene and gasoil/diesel, compared to those refineries configured with less upgrading potential. This could in turn further impact global refined product flows by enabling those refiners that can handle the crude to supply more product to the market for both domestic and export.
Currently, media reports suggest that in Europe the 315,000 b/d Vitol-owned Saras refinery in Italy and Repsol have secured Venezuelan crude, while in the U.S., Valero, Phillips 66 and Chevron have secured Venezuelan cargoes. This could result in these companies offering more gasoline, jet/kerosene and diesel to the market.
Any excess middle distillates could be absorbed by the market as both products are currently short to balanced and so additional volume arriving on the market could, at worst, cap prices. However, gasoline is balanced to long at present and so additional supplies could depress prices.
Naphtha imports before US sanctions took hold
Prior to U.S. sanctions in 2019 most of Venezuela’s naphtha imports were from the U.S. Gulf Coast. This helped to keep the Gulf coast’s naphtha market
balanced to short, as the only outlet for U.S. naphtha was gasoline blending.
After 2019 other nations, including some in Europe, exported naphtha to Venezuela and so replaced U.S. naphtha, which was redirected to Asian and
European markets. In 2021, however, the EU imposed sanctions on Venezuela that also covered its oil sector and so European naphtha stopped flowing to that country.
These sanctions meant that accurate data on Venezuelan naphtha imports is scarce. Joint Oil Data Intiative (JODI) data for Venezuelan naphtha imports
showed it did not import any naphtha in 2024 and 2025, with the last recorded import being in December 2023.
Yet, Venezuelan crude was being sold during this period, with the bulk of it being exported to China, and so Venezuela needed to be importing naphtha to allow this to occur. The naphtha imported by Venezuela was being supplied by Russia, which itself had been sanctioned by the Group of Seven countries since 2022, following its invasion of Ukraine. The sanctions resulted in Russia losing most of its naphtha export outlets – primarily Europe and North Asia. Media reports estimated that in the second half 2025 Russia supplied an average 100,000 mt/month of naphtha to Venezuela.
The lifting of sanctions on Venezuelan oil means Russian naphtha previously flowing to Venezuela will need to find new homes which will be hard given it is subject to stringent sanctions. The U.S. Gulf Coast will supply naphtha to Venezuela, replacing the Russian cargoes, but it may not be able to supply all of Venezuela’s diluent requirements. Europe will be the most viable alternative source of naphtha as would Mexico.
OPIS reported on Feb. 2 that around 1.77 million barrels of U.S. naphtha was shipped to Venezuela in January, compared with zero in December and about
664,000 bbl in November. The main export outlet for U.S. naphtha in January was Brazil with 2.66 million barrels.
On Feb. 3, the U.S. Treasury Office of Foreign Asset Control issued a general license that cleared the way for the sale of U.S.-origin diluents to Venezuela, further boosting its naphtha exports to Venezuela.
The exact degree of discount Venezuelan crude currently commands is negotiated between the buyer and seller, but media reports indicate that Venezuelan Merey – its flagship crude – is currently offered at a $5/bbl discount to Dated Brent. When Merey was sanctioned, Chinese refiners were reportedly able to secure a discount of $15/bbl.
The discount, though significant, is deemed insufficient by Indian refiners to entice them to purchase it, though it is rumored some may purchase some
barrels – Reliance’s Jamnagar refinery was upgraded to run Venezuelan heavy crude.
It is still too early to judge the impact of lifting sanctions on Venezuelan crude, but it is clear it will not lead to it flooding the market or dampening crude prices. It is, however, not too early to see the lifting of sanctions will be positive for the naphtha market by boosting naphtha exports to Venezuela, principally from the United States, that could help crimp supply to other regions.
Reporting by Yazdi Merchant, ymderchant@opisnet.com