For the past year, surging oil production from the Americas – led by the United States, Guyana, and Brazil – has been a headache for OPEC in its efforts to rebalance the market and seek higher oil prices.
OPEC’s efforts to continue influencing global oil supply and prices could be further undermined by the U.S. intervention in Venezuela and President Donald Trump’s idea to control the oil industry of the world’s biggest crude resource holder.
OPEC member Venezuela is estimated to hold 303 billion barrels of crude oil, more than each of its fellow OPEC producers, Saudi Arabia, Iraq, Iran, or the United Arab Emirates (UAE).
The U.S. controlling the Venezuelan reserves, and U.S. companies investing in recovering the struggling oil industry in the South American country could seriously tip the scale of energy market dynamics to U.S. favor. This would undermine OPEC’s influence on the global oil markets, analysts say.
Any meaningful recovery of Venezuela’s oil supply, which is currently at less than 1% of global daily demand, would need billions of U.S. dollars, probably upwards of $100 billion, in investments, and years to take hold. And that’s considering that there will be solid new legal frameworks and security guarantees that would give assurances to potential investors that they would not face another asset seizure and nationalization.
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President Trump’s plan to have U.S. firms invest in Venezuela’s oil sector recovery was not met with enthusiasm by the executives of the top U.S. oil firms at the Friday meeting at the White House.
Despite President Trump touting Venezuela’s oil as a creator of “tremendous wealth” for industry and “great wealth” for the American people, the reception from executives was lukewarm.
“We’ve had our assets seized there twice, and so you can imagine to re-enter a third time would require some pretty significant changes from what we’ve historically seen here,” Exxon’s CEO Darren Woods told President Trump.
“If we look at the legal and commercial constructs and frameworks in place today in Venezuela today, it’s uninvestable.”
Regardless of how investable Venezuela will be in the future, the U.S. control over its oil industry would change the power balance in the oil markets, giving the U.S. more sway in longer-term supply. This would leave OPEC and the wider OPEC+ group including Russia and Kazakhstan with potentially diminished clout in influencing the oil market balances and prices.
“This shift could give the U.S. greater influence over oil markets, potentially keeping oil prices within historically lower ranges, enhance energy security, and reshape the balance of power in international energy markets,” JPMorgan analysts said in a report carried by The Wall Street Journal.
Oil at $50 per barrel, as it has been President Trump’s goal since he took office a year ago, would hurt the oil revenues and non-oil investment projects in major OPEC producers, including Saudi Arabia.
The Kingdom, the world’s top crude exporter, is betting that a Venezuelan recovery is years and billions of dollars away, sources with knowledge of the Saudi thinking told the Journal.
Other Gulf producers bet on expectations that choked off Venezuelan supply to China could raise the share of Middle Eastern crude in China’s purchases, according to Gulf delegates who spoke to the publication.
The new global order, where the U.S. is vying for control of oil resources of a third country, is upending the market and creating additional challenges to OPEC and the OPEC+ alliance.
President Trump wants Venezuelan oil flows to further cut oil and energy prices.
Lower-for-longer oil prices would hit the oil revenues and economies of all OPEC+ producers, who could be hamstrung in their ability to manage supply and prices by an erratic U.S. President. OPEC+ will now have to weigh another factor in its output policy decisions and figure out how high it could try to push prices without risking angering President Trump.
By Tsvetana Paraskova for Oilprice.com