Experts say U.S. motorists won’t see a drop in gasoline prices from President Donald Trump’s massive oil deal with Venezuela because it will take years to significantly increase the country’s production.
President Trump announced Friday that the United States has secured majority control of Venezuela’s 65 billion barrels of proven oil reserves. This represents about 20% of the 303 billion barrels the South American country is thought to hold.
However, extracting these reserves requires huge investments. Experts say the legality and long-term viability of the deal with Caracas is also unclear because the Trump administration has not made the terms clear.
“We’re really operating on tweets and rumors because nothing has been made public,” said David Goldwyn, who served as the State Department’s special envoy for international energy issues under President Barack Obama.
President Trump promised Friday that the deal will “significantly lower gas prices for all Americans for years to come.” U.S. gas prices averaged $4.08 a gallon nationally on Monday, nearly 30% higher than this time last year, according to AAA data.
Prices are rising due to Ukraine’s attack on a Russian refinery and supply disruptions in the Middle East sparked by the Iran war. Patrick de Haan, head of petroleum analysis at GasBuddy, said it was basically a foregone conclusion that gas prices would hit record highs on Labor Day. The previous Labor Day record was $3.83 per gallon in 2012, De Haan said.
“Unless there’s some magical 20 cent drop, which is almost impossible, we’re going to set a Labor Day record in terms of the national average,” De Haan said. “Unfortunately, gas prices have never been this high this late in the year.”
Venezuelan oil exports will not bring short-term relief to U.S. drivers. The country’s oil infrastructure is in a state of disrepair due to years of mismanagement by the socialist government. Venezuela’s production currently stands at about 1.2 million barrels per day, down from a peak of 3.5 million barrels per day in the late 1990s.
In January, Rystad Energy estimated that about $180 billion in investment would be needed by 2040 to bring Venezuela back to peak production. Secretary of State Marco Rubio said Friday that President Trump’s deal will bring nearly $100 billion in private investment to the country.
A motorbike passes by an oil-themed mural in Caracas, Venezuela, on May 9, 2022.
Null Photo | Null Photo | Getty Images
“This has no impact on gasoline prices or production in Venezuela for many years to come,” Goldwyn said of the agreement.
Andy Lipow, president of Lipow Oil Associates, said it’s unclear which oil companies will invest to extract Venezuela’s reserves or how those deals will be structured. chevron is the only major U.S. oil company currently operating in the country through a joint venture with state-owned PDVSA.
Chevron’s production in Venezuela rose 15% this year to 280,000 barrels per day, Chief Financial Officer Aimir Bonner said on a July 31 earnings call. Oil majors expect production to increase by up to 50% by 2028, Bonner said. This will bring Chevron’s Venezuelan production to about 400,000 barrels per day in about two years.
However, production growth in Venezuela will be limited by restrictions on export terminals, Lipou said. Analysts say tankers are waiting up to 30 days to load crude oil cargoes from Venezuela due to aging infrastructure problems and power outages that have affected ports.
“We need to expand the terminal to handle more production,” Goldwyn said. “It’s unclear who will take on the project,” he said.
Venezuela’s interim president Delcy Rodríguez said on Saturday that the 25-year deal would see 17 oil fields developed and initially increase production to 1.5 million barrels per day. Most of the oil reserves are located in eight blocks of the Orinoco belt, with the rest in the Lake Maracaibo region, according to a list shared with Reuters.
Orinoco Belt fields have little or no access to infrastructure, Goldwyn said. “It will take at most five to seven years for these areas to ramp up production for the market,” he said.
And there is much uncertainty about whether this agreement is viable in the long term. Rapidan Energy President Bob McNally said the company faces significant political risks in Washington and Caracas.
McNally said the agreement would likely be revisited or scrapped if a Democratic president takes office in 2029. Even if Republicans win the next presidential election, he said, a future Venezuelan government could pull out of the agreement, as Caracas previously did.
Mr. McNally said that if all goes well in the coming decades, Venezuelan oil could add much needed supply. But that “isn’t a big factor in the short term from a pump price perspective,” he said.
