Donald Trump has said Venezuelan authorities will turn over 30mn to 50mn barrels of sanctioned crude to the US, in a sign his administration is escalating its push to control the South American country’s oil sector.
The US president said on Tuesday that the oil, worth up to $3bn, would be sold at market prices. “That money will be controlled by me, as President of the United States of America, to ensure it is used to benefit the people of Venezuela and the United States,” he wrote in a post on his Truth Social platform. “It will be taken by storage ships, and brought directly to unloading docks in the United States,” Trump said. “I have asked Energy Secretary Chris Wright to execute this plan, immediately.”
The comments come as a flotilla of US oil tankers makes its way towards Venezuelan waters to begin loading the country’s oil, which has been stranded at ports as a result of Washington’s naval blockade.
Analysts have warned Venezuela’s production will “collapse” unless Washington halts its naval blockade and enables some of the oil to leave the country due to a shortage of storage. But Trump’s declaration that he would control up to 50mn barrels of Venezuelan oil — which is just under 50 days of the country’s production — will intensify criticism that his administration is bullying the country to extract oil concessions.
“This is confiscatory, imperialistic and there is no justification for it,” said Jeffrey Sonnenfeld, a professor at Yale’s business school who has advised previous US administrations on sanctions policy. “There is also no need for this oil as we have a global oil glut.”
The Venezuelan government did not immediately respond to Trump’s statement. Brent crude, the global oil benchmark, settled 1.7 per cent lower on Tuesday, while US oil marker West Texas Intermediate dropped 2 per cent.
In Asian trading on Wednesday morning following Trump’s announcement, Brent dropped a further 1 per cent to $60.10 a barrel, while WTI was down 1.3 per cent at $56.40 a barrel.
Chevron, the most prominent US company operating in Venezuela, had been in talks with the country’s state oil company PDVSA and US authorities about shipping some of the stranded crude to US refineries to relieve pressure on the nation’s creaking oil infrastructure, a person familiar with the matter said. Almost a dozen tankers chartered by the US supermajor are sailing towards Venezuela or are already at its ports. These ships could begin transporting some oil within days, according to commodity data group Kpler.
The US embargo, imposed in mid December, has halted Venezuela’s exports, leaving oil transported from the Orinoco Belt, one of the world’s biggest crude fields, stranded in decrepit storage facilities that are at or near capacity. If the country is forced to halt further production, it will face long delays in restarting it, analysts warned.
“Venezuela has such a Herculean task before it to bring their oil sector back,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy. “Having to shut production is going to make that much harder.”
Any shutdown would imperil Trump’s efforts to rapidly deliver the windfall to the US oil sector that he touted following the US’s brazen raid over the weekend to depose strongman Nicolás Maduro.
Eimear Bonner, Chevron’s chief financial officer, and other senior US oil executives are expected to meet energy secretary Wright on the sidelines of an energy conference in Miami on Wednesday for talks about the White House’s strategy for Venezuela. Trump on Tuesday said he planned on “meeting with oil companies”. A person familiar with the matter said the talks would include Chevron as well as other US oil majors.
The White House did not immediately respond to a request for comment. People familiar with the Venezuela energy sector have warned its oil production could fall by a third in the next four weeks to as low as 600,000 barrels a day if it is not possible to move oil out of storage.
Venezuela’s crude exports — much of which were until recently sent to China — have fallen more than 30 per cent since Trump imposed a “total and complete shutdown” of sanctioned tankers transporting oil from the country’s ports. The industry’s access to naphtha, a so-called diluent that thins out molasses-like heavy oil, allowing it to be transported through pipes, has also been constrained.
Russia is Venezuela’s primary supplier of naphtha, although it has previously sourced it from the US. With export routes closed, Venezuela is rapidly running out of storage facilities for its oil, said a PDVSA engineer. “Most of the heavy crude oilfields will have to reduce their production,” this person said, adding that only the country’s light and medium-grade oilfields and those being run by Chevron would continue to pump at full capacity. Chevron has been able to continue exporting crude, including to US refineries, through special licences from Washington.
Schreiner Parker, head of emerging markets at consultancy Rystad Energy warned there could be “a short-term production collapse”, with offshore floating storage in tankers also at risk of filling up. “There’s only so much floating storage, and a big question about where Venezuela will access diluent.”
According to Kpler data, production that was at about 900,000 b/d has fallen 8 per cent since the blockade started and could drop as low as 600,000 b/d by February. Cuts have been made to production at joint ventures with China National Petroleum Corporation.
Venezuela’s “rusty” oil infrastructure had been hit in recent decades by under-investment, mismanagement and a brain drain of skilled workers, said Marc Bianchi, a senior energy analyst at TD Cowen. “Their oilfield industry has atrophied,” he said. “I would assume everything is lacking.” (Financial Times)