Venezuela Oil Output Faces Long And Risky Recovery, Analysts Say

After the US’s stunning capture of Venezuelan President Nicolás Maduro over the weekend the focus is turning to how quickly the country with the world’s largest proven crude reserves can raise output.

In the short term, it’s unclear how much oil Venezuela will be able to export and whether flows to China will continue.

And while President Donald Trump has said US companies will spend billions of dollars to rebuild the country’s energy infrastructure over the longer term, there are big doubts about whether the oil majors will want to invest in what is a very uncertain environment.

Here’s what analysts are saying about Venezuela:

RBC Capital Markets

“There will undoubtedly be a segment of the market that will embrace a ‘Mission Accomplished’ narrative and will pencil-in an easy glide path back to 3 million barrels a day of production,” analysts including Helima Croft said in a note, adding that full sanctions relief could unlock several hundred thousand barrels a day in the next 12 months assuming an orderly transition of power.

However, “the situation at the time of writing remains very fluid, but we continue to caution market observers that it will be a long road back for the country,” they said.

Capital Economics

“In theory, Venezuela could again become a major producer: it still claims to hold the world’s largest proven oil reserves,” Chief Economist Neil Shearing said in a note. “But theory and reality diverge sharply. If nothing else, geopolitical alignments in Venezuela remain unclear in the wake of Maduro’s capture,” he said.

Even if output were to rise to levels seen a decade ago, around 3 million barrels a day, that would only add about 2% to global oil supply, Shearing said.

Goldman Sachs

Brent oil prices could average $2 a barrel higher than Goldman Sachs Group Inc.’s base-case forecast of $56 a barrel for Brent this year if Venezuelan crude production falls by 400,000 barrels a day by year-end, analysts including Daan Struyven said in a note. Or, they could be $2 lower if output rises by that amount.

“Along with recent Russia and US production beats, potentially higher long-run Venezuela production further increases the downside risks to our oil price forecast for 2027 and beyond,” Goldman said. “We estimate $4 a barrel of downside to 2030 oil prices in a scenario where Venezuela crude production rises to 2 million barrels a day in 2030,” compared with 900,000 barrels a day in the bank’s earlier base case.

Global Risk Management

A limited market reaction is likely as there’s ample oil supply globally, said Chief Analyst Arne Lohmann Rasmussen. “Venezuela is known for having the world’s largest proven oil reserves, exceeding 300 billion barrels,” he said in a note. “However, reserves are one thing, production another. Venezuela’s oil production today is around 1 million barrels per day.”

Given Venezuelan crude is heavy and sulfur-rich, only refineries in the US and some in China can process the oil, Rasmussen said, adding that a potential loss of this type of oil is not particularly problematic for the global market.