President Donald Trump’s plan to take control of Venezuela’s oil industry and require American companies to revitalize it afterward President Nicolas Maduro arrested in a raid It is unlikely to have a major immediate impact on oil prices.
Venezuela’s oil industry is in poor shape after years of neglect and international sanctions, so it may take years and significant investments before production can increase significantly. But some analysts are optimistic that Venezuela can double or triple its current production of about 1.1 million barrels of oil per day to return to historical levels fairly quickly.
“While many have reported that Venezuela’s oil infrastructure has not been damaged by U.S. military actions, it has been deteriorating for many years and will take time to rebuild,” said Patrick De Haan, senior oil analyst at gasoline price tracker GasBuddy.
US oil companies will want a stable regime in the country before they are willing to invest heavily The political picture remained uncertain On Saturday, Trump said the United States was responsible, while Venezuela’s current vice president, before Venezuela’s Supreme Court ordered her to take on the role of interim president, argued that Maduro should return to power.
“But if the United States appears to be successful in running the country over the next 24 hours, I would say there will be a lot of optimism that American energy companies can come in and revitalize the Venezuelan oil industry fairly quickly,” said Phil Flynn, chief market analyst at Price Futures Group.
If Venezuela can grow into an oil-producing powerhouse, Flynn said, “that could lead to lower prices in the long term” and more oil to be released. Pressure on Russia.
Oil is not traded over the weekend, so there was no immediate impact on prices. But no major shift in prices is expected when the market reopens. Venezuela is a member of OPEC, so its production is already accounted for there. There is currently a surplus of oil on the global market.
It is known that Venezuela has the largest proven reserves of crude oil in the world, amounting to about 303 billion barrels, according to the US Energy Information Administration. This represents about 17% of total global oil reserves.
So international oil companies have reasons to be interested in Venezuela. Leading companies, including Exxon Mobil and Chevron, did not immediately respond to requests for comment on Saturday. ConocoPhillips spokesman Dennis Noss said via 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 It is the only company with major operations in Venezuela, where it produces about 250,000 barrels per day. Chevron, which first invested in Venezuela in the 1920s, does business in the country through joint ventures with state-owned Petroleos de Venezuela SA, known as PDVSA.
But even with these vast reserves, Venezuela was producing less than 1% of the world’s crude oil supply. Corruption, mismanagement and US economic sanctions have led to a steady decline in production from 3.5 million barrels per day pumped in 1999 to today’s levels.
The problem is not finding oil. It is a question of the political environment and whether companies can rely on the government to fulfill their contracts. Back in 2007, then-President Hugo Chavez He nationalized much of oil production and forced out major players such as ExxonMobil and ConocoPhillips.
“It’s not just that the infrastructure is in bad shape, it’s mostly about how to get foreign companies to start pumping in money before they have a clear perspective on political stability, setting up contracts and the like,” said Francisco Monaldi, director of the Latin American Energy Program at Rice University.
But infrastructure requires large investments.
“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 about a decade and about a hundred billion dollars in investments,” Monaldi said.
Venezuela produces the type of heavy crude oil needed for diesel fuel, asphalt and other fuels for heavy equipment. Diesel supplies are in short supply around the world because of oil sanctions from Venezuela and Russia and because American light crude oil cannot easily replace it.
Years ago, US refineries on the Gulf Coast were optimized to handle this type of heavy crude at a time when US oil production was declining and Venezuelan and Mexican crude was plentiful. So refiners want more Venezuelan crude oil because it will help them operate more efficiently, and it also tends to be a little cheaper.
Boosting Venezuelan production could also make it easier to pressure Russia because Europe and the rest of the world could get more of the diesel and heavy oil it needs from Venezuela and stop buying from Russia.
“There was a huge benefit to Russia in seeing the collapse of the oil industry in Venezuela,” Flynn said. “The reason is that they were competitors on the global stage of the oil market.”
But Matthew Waxman, a law professor at Columbia University who was a national security official in the George W. Bush administration, said controlling Venezuela’s resources opens the door to… Additional legal issues.
“For example, the big issue will be who really owns Venezuelan oil?” Waxman wrote in an email. “An occupying military power cannot enrich itself by seizing another country’s resources, but the Trump administration will likely claim that the Venezuelan government has not properly maintained them.”
But Waxman, who served in the Departments of State and Defense and on the National Security Council under Bush, noted that “we have seen the administration talk very lightly about international law when it comes to Venezuela.”
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Associated Press writers Matt O’Brien and Ben Finley contributed to this report.