President Donald Trump’s plan to take control of Venezuela’s oil industry and ask American companies to revitalize it after capturing President Nicolás Maduro in a raid isn’t likely to have a significant immediate impact on oil prices.
Venezuela’s oil industry is in disrepair after years of neglect and international sanctions, so it could take years and major investments before production can increase dramatically. But some analysts are optimistic that Venezuela could double or triple its current output of about 1.1 million barrels of oil a day to return to historic levels fairly quickly.
“While many are reporting Venezuela’s oil infrastructure was unharmed by US military actions, it has been decaying for many years and will take time to rebuild,” said Patrick De Haan, who is the lead petroleum analyst at gasoline price tracker GasBuddy.
American oil companies will want a stable regime in the country before they are willing to invest heavily, and the political picture remained uncertain Saturday with Trump saying that the United States is in charge — while the current Venezuelan vice president argued, before Venezuela’s high court ordered her to assume the role of interim president, that Maduro should be restored to power.
“But if it seems like the US is successful in running the country for the next 24 hours, I would say there would be a lot of optimism that US energy companies could come in and revitalize the Venezuelan oil industry fairly quickly,” said Phil Flynn, a senior market analyst at the Price Futures Group.
And if Venezuela can grow into an oil production powerhouse, Flynn said “that could lower cement prices for the longer term” and put more pressure on Russia.
Oil isn’t traded over the weekend, so there wasn’t an immediate impact on prices. But a major shift in prices isn’t expected when the market does reopen. Venezuela is a member of OPEC so its production is already accounted for there. And there is currently a surplus of oil on the global market.
Make reservations
Venezuela is known to have the world’s largest proven crude oil reserves of approximately 303 billion barrels, according to the US Energy Information Administration. That accounts for roughly 17% of all global oil reserves.
Exxon Mobil didn’t immediately respond to a request for comment over the weekend. ConocoPhillips spokesperson Dennis Nuss said by email that the company “is monitoring developments in Venezuela and their potential implications for global energy supply and stability. It would be premature to speculate on any future business activities or investments.”
Chevron is the only one with significant operations in Venezuela, where it produces about 250,000 barrels a day. Chevron, which first invested in Venezuela in the 1920s, does business in the country through joint ventures with the state-owned company Petróleos de Venezuela SA, commonly known as PDVSA.
“Chevron remains focused on the safety and well-being of our employees, as well as the integrity of our assets. We continue to operate in full compliance with all relevant laws and regulations,” Chevron spokesperson Bill Turenne said.
But even with those massive reserves, Venezuela has been producing less than 1% of the world’s crude oil supply. Corruption, mismanagement and US economic sanctions saw production steadily decline from the 3.5 million barrels per day pumped in 1999 to today’s levels.
“The estimate is that in order for Venezuela to increase from one million barrels per day — that is what it produces today — to four million barrels, it will take about a decade and about a hundred billion dollars of investment,” said Francisco Monaldi, director of the Latin American energy program at Rice University.
Comments are closed, but trackbacks and pingbacks are open.