(Bloomberg) -- The offer seemed too good to be true: Up to 200,000 barrels of heavy-sour crude at a $30 discount to the US benchmark. 

The sales pitch came from Jonathan Plemel of little-known trading house Sidewalks Holdings LLC. Plemel had documents saying the crude was from Mexico, said he’d even visited a lab in Coatzacoalcos for quality tests. But the prospective buyers he approached were wary. “I couldn’t say for certain where the oil was coming from,” Plemel told Bloomberg. 

Plemel isn’t the only Houston middleman marketing crude of hazy provenance as high prices spur more bargain-hunting in the oil market. Besides those approached by Plemel, two other area traders have received offers for mysteriously sourced crude in the past year, they told Bloomberg. Such propositions are unusual in the US, where the market is tightly regulated and traders risk running afoul of sanctions.

Ultimately, the traders interviewed by Bloomberg said they passed on the dirt-cheap barrels, concerned about where the oil came from. But with Russia’s invasion of Ukraine upending trade flows and fueling massive oil-price swings, the appetite for cheap crude remains high.

“It wouldn’t be surprising to find that some of the oil of questionable origin has already entered the US,” said Alejandra Leon, a director of Latin America upstream at S&P Global Inc. “The US has very tight controls but small volumes, crossing the border by truck, are a lot more difficult to control.”

Elsewhere, the black market for oil is booming with sanctions on Russia, Iran and Venezuela creating opportunities for some buyers to lock in bargain-basement deals. The three countries together may be exporting more than 4 million barrels a day of discounted oil, according to EIA and Bloomberg data. Stolen oil, meanwhile, makes up 5-7% of the global market, totaling $133 billion, according to international think tank United Nations University.

Front companies typically execute the deals, skirting sanctions by painting over ship names or using fake documents. And Asia is home to some of the busiest areas for ship-to-ship transfers, in which vessels offload or combine cargoes with other ships, a practice that can further obscure a shipment’s origins. There, Venezuelan oil is often disguised as Malaysian. 

But smuggling oil into the US is difficult, to say the least. Waterborne imports are meticulously tracked and regulated, so contraband crude would have to come in by land – and, specifically, truck. That’s what Plemel proposed to do: transport the crude by truck through Brownsville or Laredo, Texas, in batches totaling 1,500 barrels a day.

But he couldn’t clinch a buyer. Marketing documents reviewed by Bloomberg describe the oil as Mexican Heavy Residual. Yet the oil contained more salt, nickel and vanadium than Mexican crude typically does. And Pemex, the state oil company, enjoys a de facto monopoly on all crude oil sales. 

Those weren’t the only problems.

“There were many questions that I couldn’t answer,” Plemel said. “Could the oil potentially be from abandoned wells in Mexico? From Venezuela? I honestly can’t say.”

Plemel doesn’t have much experience in oil. But in 2020, he was business director at a company called Pure Aviation that was one of the bidders for a gasoline cargo turned over to the US over fears it violated sanctions. The shipment was ultimately sold to Kolmar Americas Inc. at about half its market value — a stellar deal for the trading firm. 

It was through Pure Aviation that Plemel met Heriberto Gonzalez, on whose behalf he was selling the 200,000 barrels of allegedly Mexican crude, he said. Gonzalez is the founder and CEO of Sugar Land, Texas-based Lifeline Logistics and Oil Field Services Inc., and a former acting assistant secretary of Education under President George W. Bush. He didn’t return multiple calls and emails seeking a comment. 

Under the terms of their deal, Plemel wouldn’t get paid unless he sold the oil. But because he couldn’t answer questions about its origins, he said, “I have separated myself from pursuing this opportunity.”

--With assistance from Ilena Peng.

©2022 Bloomberg L.P.