U.S. Gulf Coast refiners are paying the price for shrinking Venezuelan crude output.
U.S. production is at an all-time high, while output from the Latin American nation, despite a modest increase in January, is in decline. As a result, U.S. crude’s typical premium to heavy Venezuelan oil shrank to as small as 31 cents a barrel Friday, the narrowest since October.
Most U.S. Gulf Coast refiners profit when crude grades like those from Venezuela are at a large discount to WTI because these so-called heavy crudes comprise 40% to 60% of the oil they process, said Fernando Valle, oil and refining analyst at Bloomberg Intelligence.
“The narrowing can be attributed to a rapidly changing fundamental picture in both markets,” Mara Roberts Duque, a New York-based analyst at BMI Research, said by email. “Rising U.S. production is keeping a lid on the WTI upside while continued declines in Venezuelan output are supporting the local benchmark.”