Venezuelan Barrels Point to Lower Crude Oil Prices

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

U.S. refiners may already be plotting in Venezuelan crude oil runs. That could lead to lower crude oil prices and create headwinds domestically.

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Is More Oil a Good Thing?

The U.S. Energy Information Administration (EIA) on Tuesday pointed to headwinds from a potential rush of Venezuelan crude on the market.

"Our forecast assumes that sanctions on Venezuela remain in place throughout the forecast," said EIA analysts. "Any sanctions relaxation or other U.S. government policy changes related to Venezuela that could result in more oil production than we assumed in this forecast would put additional downward pressure on oil prices."

Lower crude oil prices could be supportive to U.S. consumers fretting over inflationary pressures, as those prices are what influence retail gasoline prices. But for the industry, it's another matter. The EIA is pointing to $50 per barrel for West Texas Intermediate, the U.S. benchmark for the price of oil. That's below the point at which many shale drillers can make a profit.

Domestically, forecasts already point to a decline in crude oil production. The EIA estimates show total domestic crude oil production would average 13.25 million barrels per day (BBL/d), a 2.5% decline from 2025. But the U.S. refining sector, built up in some cases a century ago, is not tailored to run the type of crude oil found at home, but instead runs heavier slates from the likes of Canada. Much of the Venezuela crude oil is even heavier. Canada supplies the U.S. with about 60% of its foreign oil, or about 4 million BBL/d.

Venezuelan crude oil production peaked in the 1970s at about 3.5 million BBL/d. Various sector analyses, meanwhile, found it could be a decade before the country surpasses 1 million BBL/d in production.

'Millions and Millions' of Barrels of Oil Coming, Trump Says

The U.S. military pressure on Venezuela and subsequent claims to its oil riches should put downward pressure on crude oil prices, the federal government said.

The U.S. military in early January seized Venezuelan President Nicolas Maduro and his wife from their estate in Caracas, whisking them away to New York to face federal narcotics charges. The U.S. government has since made tacit claims of control over Venezuela, with President Donald Trump declaring himself the acting president of the South American country on social media.

Unlike previous administrations with conflict in the Middle East, Trump has made no secret that he's after Venezuelan crude oil.

"We are bringing Venezuela back, and we are going to be great for Venezuela, great for our country," he said Tuesday at the Economic Club of Detroit. "We're taking in millions and millions of barrels of oil, and now they are coming in initially on a daily basis, 50 million, and values of over $5 billion. We will get oil prices down even further."

Crude oil prices are actually up by close to 9% since the start of the year, a rally triggered at least partially by conflict in Venezuela and threats of war in Iran. Both countries are founding members of the Organization of the Petroleum Exporting Countries.

Various media reports suggest U.S. energy companies are already getting involved. Citing sources familiar with the situation, Reuters news service reported that Chevron Corporation (Houston, Texas) was expecting to take in heavy Venezuelan crude oil at its refineries in Texas and Mississippi.

Chevron is the only U.S. company with a license to operate in Venezuela. Elsewhere, Reuters in a separate report on Wednesday indicated that Exxon Mobil Corporation (Spring, Texas) may be keen on accepting Venezuelan oil at its refinery in Baton Rouge, Louisiana.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refining Plant Database can learn more about the refineries in question--including capacities, investment values and necessary equipment--in detailed profiles.

Trump said there may not be a role for ExxonMobil in Venezuela after the company's chief executive officer said the country was "un-investable." A report in the Detroit News, meanwhile, added that Patrick Pouyanne, the chief executive officer at TotalEnergies (Courbevoie, France), was also cautious about committing to Venezuela, noting it would take billions of dollars in investments and years of work before the market would see any meaningful impact.

Mike Sommers, the head of the American Petroleum Institute, on Monday raised his own points about the long-term prospects for Venezuelan crude.

"Venezuela sits on some of the largest oil reserves in the world," he said. "But today it produces less oil than North Dakota. That demonstrates a simple truth: energy strength requires good governance, stability and policies that allow long-term investment."

By the Numbers

• 2.5% annual decline in U.S. crude oil production
• $50 crude won't support domestic drillers
• 60% of foreign oil comes from Canada

Key Takeaways

• Trump is expecting to take on more Venezuelan crude.
• Parts of the industry are somewhat skeptical of those plans.
• Venezuela currently doesn't even rival North Dakota in crude oil output.

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resource's Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).