Venezuela Oil Boost: Prices Fall as US Imports Loom

Global oil prices declined by more than 1% after the U.S. announced a deal with Venezuela to receive 30m to 50m barrels of crude oil. The agreement allows the U.S. president to sell up to $3 billion worth of Venezuelan crude, currently held in tankers and storage facilities, into an already oversupplied global market.

Venezuela Oil Deal Drives Down Prices

The move threatens to further depress oil prices, which experienced their steepest annual fall since the Covid pandemic last year. Oil producers are currently pumping more crude than is needed to meet global demand.

Brent crude, the international benchmark, fell to just over $60 a barrel on Wednesday. The U.S. oil price decreased by 1.4%, reaching $56.44 a barrel.

The deal also raises concerns about potential disruptions to Venezuela’s oil exports to China, which currently receives approximately 80% of the country’s crude. This could lead to higher prices for Chinese consumers and increased tensions with the White House.

China’s foreign ministry stated that Venezuela “enjoys full and permanent sovereignty over its natural resources and economic activities,” and that U.S. demands violate international law and infringe upon Venezuelan sovereignty.

In a post on his Truth Social platform, the U.S. president said the funds generated from the oil sales “will be controlled by me…to ensure it is used to benefit the people of Venezuela and the United States.” He stated the oil would be transported directly to unloading docks in the U.S.

The U.S. president has indicated a desire for Venezuela’s interim president, Delcy Rodríguez, to grant the U.S. and private companies “total access” to Venezuela’s oil industry. U.S. Energy Secretary Chris Wright is tasked with executing the deal, and the oil will be taken from ships and sent directly to U.S. ports.

The U.S. is seizing control of Venezuela’s crude shortly after an attack on Caracas led to the capture of former president Nicolás Maduro. The U.S. president also vowed that U.S. companies would revitalize Venezuela’s struggling oil industry.

Executives from Chevron, ConocoPhillips, and ExxonMobil are scheduled to meet with the U.S. president at the White House on Friday to discuss potential investments in Venezuela’s oil industry. Chevron is currently the only U.S. oil company operating in Venezuela, following the nationalization of ConocoPhillips and Exxon assets by former president Hugo Chávez in the mid-2000s.

The U.S. president described the nationalization as “the greatest theft in the history of America,” stating that oil companies would rebuild Venezuela’s decayed infrastructure.

U.S. oil majors have so far declined to publicly detail any investment plans, and there is skepticism about their willingness to invest in a politically unstable region amid falling oil prices without strong investment guarantees.

There is also doubt whether Venezuela, which holds the world’s largest crude reserves, can significantly increase production after years of neglect and corruption. Output has fallen from a high of 3.5 million barrels per day 25 years ago to approximately 1 million barrels per day, representing less than 1% of the global market.

Analysis by Rystad Energy suggests that restoring Venezuela’s oil production to its late 1990s levels would require up to $185 billion in capital spending and 15 years of work to repair the country’s infrastructure.