By Myra P. Saefong
A political shift in Venezuela could ‘eventually increase output,’ says a CIBC energy trader
Any Venezuela conflict isn’t automatically synonymous with tight global oil supplies, according to Rebecca Babin at CIBC Private Wealth.
President Donald Trump has cited drug trafficking as the rationale for recent deadly U.S. strikes on boats in the Caribbean Sea and White House threats to force the resignation of Venezuela’s President Nicolás Maduro, but crude oil is almost certainly playing a part, too.
What’s happening in Venezuela cannot be categorized as a “single-issue situation,” said Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth. It’s hard to say the developments are only about oil, but oil is “certainly part of the story given the scale of Venezuela’s reserves.”
Trump has taken “unprecedented action to stop the scourge of narcoterrorism” and its role in the deaths of Americans, White House deputy press secretary Anna Kelly told MarketWatch by email.
Venezuela, home to the world’s largest proven oil reserves, only produced 742,000 barrels per day of crude oil in 2023, according to the U.S. Energy Information Administration.
When asked whether oil was among the reasons for Trump’s pressuring Maduro to resign, and whether there was any U.S. push for regime change in Venezuela, Kelly said: “The President will continue to use every element of American power to stop drugs from flooding into our country.”
Venezuela is home to the world’s largest proven oil reserves, with an estimated 303 billion barrels. Despite that, it only produced 742,000 barrels per day of crude oil in 2023, according to the U.S. Energy Information Administration.
Of note, the type of heavy crude oil Venezuela produces is used as feedstock for many U.S. refineries to process into petroleum products such as diesel fuel, which is in tight supply, partly because of sanctions on Russian oil.
Multinational oil companies largely abandoned Venezuela during the Hugo Chávez years, said Tom Kloza, chief oil analyst at Gulf Oil, which distributes gasoline and other oil products throughout North America. Chávez served as the fifth most populous South American country’s president from 1999 to 2013.
Those oil companies then “doubled down on that strategy” with Nicolás Maduro, he said. Maduro, vice president under Chávez, became president after Chávez’s death in 2013.
Venezuela under Maduro
Now, rising tensions between the U.S. and Venezuela look to shake things up in the sector. The U.S. began conducting military strikes in September on boats the Trump administration says were involved in drug trafficking from Venezuela. Legal experts have questioned whether those strikes are lawful.
Trump told Maduro recently that the U.S. would consider using force if he didn’t give up power willingly, the Wall Street Journal reported, citing people described as familiar with the matter. The U.S., meanwhile, has built up its military presence near Venezuela.
If Maduro, re-elected last year in an internationally decried contest, were to step down, that would lead to much more heavy sour crude, the type of crude “the world needs and is a bit short of,” said Gulf Oil’s Kloza. Real progress toward getting that crude, however, would not likely take place in this decade, he said.
Many U.S. oil refineries were built to process heavy Venezuelan crude. Nearly 70% of U.S. refining capacity runs most efficiently with heavier crude – which tends to be a cheaper grade of crude oil because it is more difficult to process and requires refiners to absorb significant upfront investment costs, according to American Fuel & Petrochemical Manufacturers, or AFPM, a trade association for American fuel companies. That type of crude is also more widely available in the global market, AFPM said.
Read: Why any U.S. military strike on Venezuela could damage America’s fuel supply and the global oil market
Many Gulf Coast refiners would “love to run Venezuelan crude and increase yields of the most attractive products like diesel,” said Kloza. If you have to substitute that heavy oil with light, sweet U.S. shale crude, you’ll “make too much gasoline – which right now is a loser for some refineries,” he said.
Gasoline prices are in “free fall,” with prices at the pump as low as $1.78 a gallon in Colorado and under $2 in about five states, said Kloza. The national average stood at $2.991 on Thursday, according to AAA.
Restoration of Venezuela’s oil output could offset risk with Russia, said Patrick De Haan, head of petroleum analysis at GasBuddy.
Negotiations involving the U.S. have yet to lead to a Russia-Ukraine peace deal, and Western sanctions on Russia’s oil sector remain in place, feeding concerns over tighter supplies.
Venezuela, Canada and Russia rank as the world’s largest producers of heavy oil, and, given the reliance of many U.S. refineries on heavy crude oil, Trump could be trying to balance risks by taking a stand on Venezuela, said De Haan.
Oil-supply glut
For now, there’s a tremendous amount of uncertainty around the situation between Washington and Caracas, and it’s “hard to jump on long-term assumptions without much more clarity,” said CIBC’s Babin.
If the situation were to stabilize and a new government in Venezuela established a strong relationship with the U.S., it’s possible to see investment “flow back in to rebuild the sector and restore production capacity,” Babin said.
That’s what makes this geopolitical conflict so unusual for oil.
‘Unlike most geopolitical hot spots, Venezuela isn’t a major producer today despite having the world’s largest reserves – so a political shift could eventually increase output, rather than constrain it.’Rebecca Babin, CIBC Private Wealth
“Venezuela is unique because a conflict … isn’t automatically synonymous with tight global [oil] supplies,” said Babin. “Unlike most geopolitical hot spots, Venezuela isn’t a major producer today despite having the world’s largest reserves – so a political shift could eventually increase output, rather than constrain it.”
However, restoration of Venezuela’s production capacity would happen over a “multiyear timeline – five years or more – and well beyond the scope of a single [presidential] administration,” Babin said. There is “simply not enough clarity for the crude market to price a definitive path,” she said.
Lately, oil prices have been influenced more by expectations of a growing surplus in global oil supplies, rather than the tensions between the U.S. and Venezuela. So far this year as of Wednesday, prices for U.S. benchmark West Texas Intermediate oil (CL.1) have fallen nearly 18%, while the price of the global benchmark Brent crude (BRN00) has declined by 16%.
The market likely realizes that it is “almost certain that oil supply will dramatically outpace demand, at least in the next few quarters,” said Gulf Oil’s Kloza. The International Energy Agency forecasts a 2026 crude-supply daily surplus of 4 million barrels.
The outlook for oil-supply balance is “quite poor,” said Kloza. When taking that into account, he would not expect traders to buy aggressively on news of a U.S. attack on Venezuela.
-Myra P. Saefong
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12-04-25 1446ET
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