What The US Strike In Venezuela Means For Oil Prices Around The World

Hours after the capture of Venezuelan President Nicolas Maduro and his wife, US President Donald Trump announced plans for the United States to take control of Venezuela's vast oil reserves and recruit American companies to revitalise the country's faltering energy sector.

“We're going to have our very large United States oil companies, the biggest anywhere in the world,” Trump told reporters on Saturday. “Fix the badly broken infrastructure, the oil infrastructure, and start making money for the country.” He described Venezuela's oil business as “a total bust” and said “they were pumping almost nothing by comparison to what they could have been pumping and what could have taken place.”

Venezuela holds the largest proven oil reserves on Earth, up to 303 billion barrels, about a fifth of global reserves, according to the US Energy Information Administration (EIA). Yet production has plummeted under Maduro, with current output at roughly 1 million barrels per day, less than a third of pre-socialist era levels. 

Trump's focus on Venezuela is reportedly driven by the type of crude the country produces. Venezuelan oil is heavy, sour crude, essential for diesel, asphalt, and industrial fuels. Most US refineries were designed for this oil and operate less efficiently with lighter domestic crude. 

Even with US oversight, restoring Venezuela's production will require decades and massive investment. State-owned PDVSA's pipelines have not been updated in 50 years, and the cost to return to peak production is estimated at $58 billion, as per CNN.

Currently, US sanctions restrict Venezuelan oil, and only Chevron maintains operations. Other energy giants, including ExxonMobil, Shell, BP, TotalEnergies, and Saudi Aramco, have yet to announce positions.

US Strike In Venezuela: What It Means For Oil Prices

1. Venezuela's oil is huge but not producing much - The country has the world's largest oil reserves, but only produces about 1 million barrels a day, less than 1 per cent of global supply. Because of this, the strike won't drastically change global oil prices immediately.
2. Oil prices react lightly - Prices briefly rose above $60 per barrel after the news but quickly dropped again. Global supply is still plenty, so markets aren't panicking.
3. Diesel supply could feel it more - Venezuela's oil is heavy, sour crude, important for diesel and industrial fuels. Diesel shortages could push some fuel prices higher even if crude stays stable.
4. Long-term impact depends on rebuilding - If US companies fix Venezuela's oil industry, output could rise significantly but it could take years and billions of dollars.
5. Other global factors - Overall oil prices are still driven mostly by global supply, demand, and other geopolitical events, not only Venezuela.