The Real Price of Oil: Why a Barrel Isn’t Worth What Brent Says

Yesterday I published the Spanish version of an article based on a very practical lesson I learned years ago inside PDVSA.

Every morning we calculated something the public debate almost never discusses:

How much a refinery was actually willing to pay for a Venezuelan barrel.

For decades the conversation about Venezuela’s oil industry has focused on production targets — 4, 5, or 6 million barrels per day.

But production was never the decisive variable.

The real question is:
Why would a refinery choose a Venezuelan barrel instead of a Middle Eastern, Mexican, Canadian, or U.S. barrel?

Oil is not sold through geopolitics.
It is sold through industrial profitability.

Using refinery simulations, crude assays, freight costs, product prices, and linear programming, we calculated the Netback — the refiner’s real margin after turning crude into gasoline, diesel, and jet fuel.

And the conclusion was always the same:

The oil price is not set by the producer… it is set by the refiner.

The attached illustration explains why.
The United States is divided into five petroleum districts (PADDs). The same Venezuelan barrel has a different economic value depending on which refining system processes it — and the most important one for heavy crude is the U.S. Gulf Coast (PADD 3), where refineries were literally designed to process oils like Venezuela’s.

This helps explain today’s market realities:

• The U.S. exports light crude but imports heavy
• Canada dominates heavy supply to the Gulf Coast
• Middle Eastern producers compete for complex refineries
• Geography and refining configuration matter more than reserves

The problem for an oil country is therefore not only how much it produces.

It is whether it knows where, how, and to whom each barrel should be sold.

In modern petroleum economics the key asset is not the reservoir underground.

It is knowledge, technical capability, and institutional credibility.

I open the discussion:

What is more important for an oil nation — the size of its reserves, or the human capital capable of interpreting the numbers behind each barrel?

#OilMarket #EnergyEconomics #Refining #PDVSA #Commodities #Geopolitics #Finance #FinanzasFelices

 

The Real Price of Oil: Dynamics Behind the Price of Venezuelan Crude

What I learned at PDVSA calculating every morning how much a refiner was actually willing to pay for Venezuelan crude.

For decades — and especially today — the oil debate about Venezuela has been almost childish:

Can it produce 4, 5, or 6 million barrels per day?

That was never the right question.

The real question has always been another:

At what price would a refinery anywhere in the world choose to buy a Venezuelan barrel instead of an Arab, Mexican, or U.S. barrel?

Because oil is not sold through patriotism.
It is sold through industrial competitiveness.

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The model that actually answered the question

Between 1991 and 1992, PDVSA — with the participation of its integrated subsidiaries, the parent company, and Intevep — developed a system to calculate something far more important than production:

the maximum competitive price of Venezuelan crude.

The system ran daily.

It was not a political estimate.
It was an engineering-economic calculation.

The starting point was enormous: gathering crude oil assays from virtually every crude traded worldwide.

No two crude oils are alike.
They differ in:

• API gravity

• sulfur content

• metals

• residual content

• yields of gasoline, diesel, jet fuel, and fuel oil

In practice:

A barrel is not valuable by itself. It is valuable because of what it produces when refined.

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The heart of the system: the Netback

The tool we used was PAWS (Petroleum Analysis Workstation), updated daily with:

• international crude prices

• refined product prices

• shipping costs

• insurance

• taxes

• refinery operating costs

With this information we calculated the Netback.

The Netback answers the key question:

How much money does a refinery actually earn after buying a barrel and turning it into fuels?

In other words:

The oil price is not determined by the producer.
It is determined by the refiner’s profitability.

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“Cutting” the barrel: where real economics begins

Then came the most important technical step.

With the support of refining engineers, each crude was simulated inside different refinery configurations:

• simple distillation

• medium conversion refinery

• complex refinery with deep coking (U.S. Gulf Coast, PADD 3)

Each barrel was “cut” — meaning we determined how much it produced of:

• gasoline

• diesel

• jet fuel

• LPG

• petroleum coke

• fuel oil

Those yields were then multiplied by the market price of each product in each region.

And that is where the truth appeared:

The economic value of crude depends more on the refinery that processes it than on the country that produces it.

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The forgotten factor: shipping

Here comes the first counterintuitive conclusion.

Selling oil to China was not always good business.

Why?

Because oil is probably the only commodity where logistics costs can determine the producer’s profitability.

The model incorporated:

• tanker rates

• insurance

• vessel size (Aframax, Suezmax, VLCC, ULCC)

• tolls (including the Panama Canal)

• alternative routes

• navigation times

The result was clear:

A barrel located near a complex refinery may be worth more than the same barrel sold across the world.

That is why historically the Gulf of Mexico was the natural market for Venezuelan heavy crude.

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Linear programming: oil’s invisible tool

For each market, “typical” refineries were simulated using linear programming.
This allowed us to calculate which crude blends maximized the refiner’s profit.

And every morning traders received something extraordinary:

a daily crude competitiveness report.

That document answered three questions:

• where to sell

• to whom to sell

• how much discount to offer

That was the real marketing system.

Not diplomacy.
Not ideology.
Mathematical optimization.

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What the 2026 oil market confirms

Today, decades later, the market validates that model:

• The U.S. exports light crude but imports heavy crude

• Canada dominates heavy supply to the Gulf Coast

• Mexico struggles to maintain market share

• The Middle East seeks complex refineries as clients

The reason is simple:

Gulf Coast refineries were designed to process heavy, sour crudes like Venezuela’s.

The problem was never the existence of a market.

The problem was losing competitiveness.

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More important than producing: knowing how to sell

We talk about reserves.
We talk about sanctions.
We talk about investment.

But the decisive variable is another:

the technical capability to place each barrel in the right refinery at the right price.

When meritocracy was lost, more than employees were lost.
Operational memory was lost.

If thousands of workers with 15–20 years of average experience are dismissed, what disappears is not just human capital.

The mental model that allows understanding the business disappears.

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The lesson

Venezuela can indeed become a major exporter again.

But not by starting with higher production.

It must begin with something more basic:

rebuilding institutions, legal stability, and technical capability to compete in a market where oil is not sold…
it is calculated.

Because in the modern oil economy, the real asset is not the reservoir.

It is knowledge.

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The real price of oil: why a barrel is not worth what Brent says

A country may set gigantic production targets, but without clear rules, trust, and professional management, no barrel will be competitive.

Oil can finance an entire nation — even generations yet unborn — if it is managed with long-term vision and technical discipline.

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Join the discussion

What good are the largest reserves on Earth if you do not know the right customer for each barrel?

And more importantly:

Will the future of oil depend on what lies underground… or on the human capital capable of interpreting its numbers?

Happy and Healthy start to Carnival 2026 — and, alternatively, Lunar New Year celebrations.
Sunday, February 15, 2026

Rafael Vilagut
vilagutvrafael@gmail.com
WhatsApp +506 6286 7655
San José, Costa Rica, Central America

Link Spanish: https://felizysaludable.blogspot.com/2026/02/el-verdadero-precio-del-petroleo.html

Published by raalvive on Sunday, February 15, 2026

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Echa un vistazo al último artículo de mi newsletter: «The Real Price of Oil: Dynamics Behind the Price of Venezuelan Crude» https://www.linkedin.com/pulse/real-price-oil-dynamics-behind-venezuelan-crude-vilagut-pokke a través de @LinkedIn