Venezuela shock: Chevron exit to reshape heavy sour markets

Executive Summary

Market & Trading calls

Americas:

• Bearish on Venezuelan production outlook with output set to fall by 170 kbd by Q3.
• Bullish on LatAm heavy sour differentials with Maya and Castilla set for a strong rebound, expect Mars to regain a premium to WTI Houston.
• Neutral on WTI-Brent spread as the upside is capped despite recent narrowing.

Europe and Africa:

• Bullish on Dated Brent differential with tighter short-term sweet crude balance in Atlantic Basin.
• Bullish Johan Sverdrup differentials with greater buying interest for central European refiners into the summer.
• Neutral Russian grade differentials with higher domestic runs and lower freight potentially offset by lower Indian demand through monsoon season.

Middle East - Asia - Russia:

• Bearish on China’s imports of Iranian crude as tighter sanctions on teapots and port terminals heighten logistical hurdles and discourage buying.
• Bearish on CPC Blend prices as Kazakhstan’s oil output shows no signs of slowing, while a firm Brent-Dubai EFS keeps the arbitrage window shut.
• Bullish on China’s imports of Russian pipeline crude amid plans to ramp up transfer volumes.

Americas: A strong week ahead for heavy sours as Chevron exits Venezuela

US sanctions: Chevron's Venezuela licence to expire

Initial signals of a 2-month waiver extension for Chevron’s operations in Venezuela were overturned when US Secretary of State Marco Rubio confirmed expiry on Monday, 27 May. Despite earlier optimism driven by diplomatic overtures, such as the release of a US detainee and envoy-led talks in Caracas, this reversal affirms Washington’s hardline stance on Maduro.

The short-term impact is severe for Venezuelan supply. Chevron’s withdrawal will disrupt five JVs, with PDVSA unable to stabilise output despite elevated naphtha inventories. Kpler estimates a 54 kbd m/m decline to 809 kbd in June, accelerating to 757 kbd in July–August, and bottoming out at 720 kbd by September, down from 890 kbd in early 2025.

Venezuelan crude imports into PADD 3 have already dropped from 233 kbd in Q1 to 145 kbd since April, now comprising 13% of seaborne imports into the USGC, down from 21% earlier in the year. The cessation of these flows will tighten the heavy sour market significantly, lifting demand and differentials for Canadian, Mexican, and Colombian grades.

Maya crude could strengthen from -$6.40/bbl to less than a -$6.00/bbl discount to WTI, while we expect Castilla to flip from a -$0.35/bbl discount to a premium, driven by higher PADD 3 demand and tightening supply. Colombian blends Vasconia and Llanos are poised to benefit in tandem.

Latam heavy sour diffs against WTI, $/bbl

Source: Argus Media

Rebound in sight for Mars and Canadian grades

Following Chevron waiver rumours, Mars weakened by $0.70/bbl to -$0.87/bbl vs. WTI Houston, down from a May average premium of $0.50/bbl. With Venezuelan volumes reduced by 90 kbd since March, Mars is set to recover, likely returning to a premium against WTI Houston, despite higher Gulf of Mexico supply.

WCS Hardisty slipped to -$11.36/bbl vs. WTI Cushing, widened from an average -$9.67/bbl in early May. The impact of Chevron’s exit will be partly offset by returning Canadian production from maintenance (which we estimate +70 kbd m/m in June to 4.95 Mbd) and strong PADD 2 demand (+300 kbd m/m). WCS is likely to trade under a $10/bbl discount in the coming weeks.

Mars differential against WTI Houston, $/bbl

Source: Argus Media

WTI-Brent spread narrows, but further tightening unlikely

Rebounding US demand ahead of the summer season has limited the availability of crude cargoes for exports, which has tightened the WTI-Brent spread to under the $3/bbl mark for the first time since late January. So far in May, US oil exports have decreased by more than 162 kbd m/m to 3.58 Mbd mtd. However, our predictive flows estimates show that a rebound to above 3.7 Mbd is possible before the month ends, even though the trend would still point to a decline.

Forward looking, even though the WTI complex will remain strong in the short-term, considering that we expect US crude intake to rise by another 312 kbd in June m/m, domestic demand growth for WTI crude will remain limited. Indeed, PADD 2 will see most of the crude intake rise (+183 kbd). This is more bullish for Canadian crude differentials as Canadian oil makes up the majority of the input, with a more limited impact on WTI. Furthermore, the strength in the NSD structure will also prevent the spread from narrowing a lot more (see Atlantic Basin section).

US crude exports by destination trading regions, kbd

Source: Kpler

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The full report is available within Insight and contains:

• Americas: A strong week ahead for heavy sours as Chevron exits Venezuela
• Atlantic Basin: North Sea sweet crudes rally on tight supply signals
• Middle East and Asia: Iranian oil floating storage builds up off China’s Yellow Sea as tighter US sanctions bite

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