President Donald Trump’s plan to take control of Venezuela’s oil industry and ask U.S. companies to revitalize it after capturing President Nicolás Maduro in a raid is not likely to have a significant immediate impact on oil prices.
Venezuela’s oil industry is in poor shape after years of neglect and international sanctions, so it could take years and significant investment before production can increase dramatically. But some analysts are optimistic that Venezuela could double or triple its current production of about 1.1 million barrels of oil per day to return to historic levels fairly quickly.
“While many report that Venezuela’s oil infrastructure was not damaged by US military actions, it has been in decline for many years and will take time to rebuild,” said Patrick De Haan, senior oil analyst at gasoline price tracker GasBuddy.
American oil companies will want a stable regime in the country before they are willing to invest much, and the political landscape remained uncertain Saturday as Trump said the United States is in charge, while the current Venezuelan vice president argued, before Venezuela’s top court ordered her to assume the role of interim president, that Maduro should be restored to power.
“But if it looks like the United States is successful in running the country over the next 24 hours, I would say there would be a lot of optimism that American energy companies can come in and revitalize the Venezuelan oil industry fairly quickly,” said Phil Flynn, senior market analyst at Price Futures Group.
And if Venezuela can become an oil-producing powerhouse, Flynn said, “that could lock in lower prices over the long term” and put more pressure on Russia.
Speaking to reporters on Air Force One on Sunday, Trump said the oil companies “are going to come in and rebuild this system.”
A major change in oil prices was not expected because Venezuela is a member of OPEC, so its production is already accounted for there. And there is currently a surplus of oil on the world market.
The price of US crude oil lost 23 cents early Monday to $57.09 per barrel. Brent crude, the international standard, fell 18 cents to $60.57 a barrel.
proven reserves
Venezuela is known to have the world’s largest proven crude oil reserves, at about 303 billion barrels, according to the U.S. Energy Information Administration. That represents approximately 17% of all global oil reserves.
So international oil companies have reason to be interested in Venezuela. Exxon Mobil did not immediately respond to a request for comment on Saturday. ConocoPhillips spokesman 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 future business activities or investments.”
Chevron is the only one with significant operations in Venezuela, where it produces around 250,000 barrels per 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 continues to focus 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 applicable laws and regulations,” said Chevron spokesman Bill Turenne.
But even with those huge reserves, Venezuela has been producing less than 1% of the world’s crude oil supply. Corruption, mismanagement and US economic sanctions caused production to steadily decline from 3.5 million barrels per day pumped in 1999 to current levels.
The problem is not finding the oil. It’s a question of the political environment and whether companies can count on the government to honor their contracts. In 2007, then-President Hugo Chávez nationalized much of oil production and expelled major players such as ExxonMobil and ConocoPhillips.
“The problem is not just that the infrastructure is in poor condition, but rather how to get foreign companies to start investing money before they have a clear perspective on political stability, the contract situation and things like that,” said Francisco Monaldi, director of the Latin American energy program at Rice University.
But the infrastructure needs significant investment.
“The estimate is that for Venezuela to increase from one million barrels per day – which is what it produces today – to four million barrels, it will take around a decade and around one hundred billion dollars of investment,” Monaldi said.
Strong demand
Venezuela produces the type of heavy crude oil needed for diesel fuel, asphalt and other fuels for heavy equipment. Diesel is in short supply around the world because of oil sanctions from Venezuela and Russia and because lighter crude oil from the United States cannot easily replace it.
Years ago, U.S. refineries on the Gulf Coast were optimized to handle that type of heavy crude at a time when U.S. oil production was falling and Venezuelan and Mexican crude was plentiful. So refiners would love to have more access to Venezuelan crude because it would help them operate more efficiently and it tends to be a little bit cheaper.
Boosting Venezuelan production could also ease the pressure on Russia because Europe and the rest of the world could get more of the diesel and heavy oil they need from Venezuela and stop buying from Russia.
“It’s been a great benefit to Russia to see the collapse of Venezuela’s oil industry. And the reason is because they were a competitor on the global stage for that oil market,” Flynn said.
A complicated legal landscape
But Matthew Waxman, a Columbia University law professor who was a national security official in the George W. Bush administration, said taking control of Venezuela’s resources opens up additional legal questions.
“For example, a big problem will be who really owns Venezuela’s oil?” Waxman wrote in an email. “An occupying military power cannot enrich itself by taking the resources of another state, but the Trump administration will likely claim that the Venezuelan government never legitimately had them.”
But Waxman, who served in the State and Defense Departments and on the National Security Council during the Bush administration, noted that “we have seen the administration talk very dismissively about international law when it comes to Venezuela.”
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Associated Press writers Matt O’Brien, Ben Finley, Darlene Superville and Rio Yamat contributed to this report.
