Are Caracas and Washington Reconciling? Maybe

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Researched by Amir Richani for Industrial Info Resources (Sugar Land, Texas)--The U.S. and Venezuela continue to mend their ties, in search of oil and sanctions relief. The latest rapprochement between the nations occurred this month after Caracas freed seven U.S. citizens detained in Venezuela, in exchange for the release of two Venezuelans from the U.S.

Among the detained in Caracas were five CITGO Petroleum Corporation (Houston) oil executives, Venezuela's refiner in the U.S. Meanwhile, Washington released two nephews of Venezuelan President Nicolas Maduro, who were convicted of drug-trafficking charges.

This exchange represented a goodwill gesture between the governments, following months of negotiations. The rapprochement comes three years after Washington imposed sanctions on Caracas, which have restricted Venezuela's oil exports, reduced the nation's production, and closed the door to international markets.

Nevertheless, the turn in U.S. policy came after the Ukraine war led to an international energy crisis, with prices hitting new highs just a few months before the U.S. mid-term elections, which are scheduled for November 8.

Venezuela's vast oil and gas reserves, and the possibility of increasing oil production in the near-to-mid-term, have sparked the White House's incentives to mend its relations with its South American neighbor.

Currently, the Latin American nation cannot return to production levels registered in the last decade near the 2 million barrels per day (BBL/d) of oil, given the lack of maintenance in its energy infrastructure and the steep investments required to reignite Venezuela's energy industry. According to OPEC's monthly oil report, Venezuela's oil output in the third quarter averaged 666,000 BBL/d, only a fraction of the volumes seen in the 2000s.

Historically, Venezuela has been a significant oil supplier to the U.S., with refiners importing almost 1 million BBL/d of Venezuelan oil in 2012. However, since 2019, imports of Venezuelan crude to U.S. ports have stopped due to sanctions. The nation's heavy sour crude has been a good match for refineries on the Gulf Coast, which benefit from processing heavy sour grades such as the Merey blend.

The negotiations between Washington and Caracas are likely to continue and lead to further concessions, with the flexibility of oil sanctions as a critical priority. Based on the current developments, it is expected that the White House will ease Chevron Corporation's (NYSE:CVX) (San Ramon, California) license to run in Venezuela and rekindle U.S. investments and operations in the world's largest oil reserves.

On the other hand, Maduro's government is looking to attract international funds to reignite Venezuela's oil and gas industry. Last month, the Venezuelan president highlighted that his country has dozens of oil and gas projects ready for international investments.

Despite the slow but constant negotiations between the nations, the control over Citgo might be a contentious point of discussion. Currently, the U.S. refiner is in control of Venezuela's opposition, following the 2019 oil sanctions and Washington's backing of the interim government of Juan Guaido. Nevertheless, Maduro likely will push to secure the control of one of the U.S. largest oil refiners as negotiations with Washington continue.

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