Changes in Venezuela are a "big trouble" for OPEC, and the United States is expected to control "30% of global reserves"

# Source: Wall Street Insights

By Zhao Ying

Analysts predict that although revitalizing Venezuela’s dilapidated oil industry requires huge investment and a great deal of time, even a modest short-term increase in production, coupled with more substantial long-term growth, may exacerbate the global supply-demand imbalance and further push down oil prices. According to estimates by JPMorgan analysts, the combined oil reserves of producers in Guyana, Venezuela and the United States could enable the U.S. to control approximately 30% of the world’s total reserves.

The Trump administration’s plan to fully take control of Venezuela’s oil supply, together with the U.S.’s own massive output, may reshape the landscape of the global oil market and play a disruptive role in an already oversupplied market.

According to a report by *The Wall Street Journal* on Monday, people familiar with the matter said that Trump, who has long advocated for increasing oil production and set a target price of $50 per barrel, is planning to promote an initiative to fully overhaul Venezuela’s oilfields and market their output. This will allow the U.S. to gain control over the production of one of OPEC’s founding members and potentially exert a disruptive influence on the global oil market.

Analysts predict that although revitalizing Venezuela’s dilapidated oil industry requires huge investment and a great deal of time, even a modest short-term increase in production—and more substantial long-term growth—may exacerbate the global supply-demand imbalance and further push down oil prices. According to estimates by JPMorgan analysts, the combined oil reserves of producers in Guyana, Venezuela and the United States could enable the U.S. to control approximately 30% of the world’s total reserves.

OPEC member states now face a difficult choice: either cut supply to prop up prices, or risk hurting revenues and market share—as well as possibly damaging relations with the unpredictable U.S. president.

## Divided Views on Prospects for Venezuela’s Production Recovery

Some OPEC member states believe that if the Venezuelan government revises regulations to attract U.S. investors, the country may increase its daily oil output by 2 million barrels within one to three years, up from the current level of less than 1 million barrels. This expectation was disclosed by OPEC representatives from the Gulf region.

According to people familiar with the matter, Saudi Arabia is currently adopting a wait-and-see attitude. The Saudi judgment is that restoring Venezuela’s production will take several years, and U.S. companies will need a legal framework and U.S. government guarantees that can bind future administrations before investing the billions of dollars required to repair Venezuela’s dilapidated infrastructure. Although Venezuela boasts vast oil reserves, its crude oil is of heavy, high-sulfur grade, regarded as low-quality and lacking in commercial appeal.

Other Gulf OPEC member states view Trump’s plan as a potential glimmer of hope.

## Expanding U.S. Influence Reshapes Market Power Balance

Even so, the U.S. deployment in Venezuela will complicate OPEC’s efforts to manage the market, as vast reserves will fall under U.S. control and outside OPEC’s orbit, according to representatives.

In a recent report, JPMorgan pointed out: "This shift may endow the U.S. with greater influence over the oil market, potentially keeping oil prices in a historically low range, enhancing energy security, and reshaping the balance of power in the international energy market."

OPEC and its allies including Russia have been working to formulate strategies to counter Trump’s push for lower oil prices. Although Trump has repeatedly called on the organization to increase oil production, its member states are worried that prices are already too low. At a meeting on Sunday, OPEC, together with Russia and other producing countries, agreed to suspend any production increase plans for the first three months of this year.

## Prolonged Low Oil Prices Continue to Pressure All Parties

Crude oil prices fell sharply last year due to rising global production and concerns over the global economic situation. Brent crude, the global oil benchmark, is currently trading at around $63 per barrel, while U.S. benchmark crude hovers at approximately $59 per barrel—both down about one-fifth from a year ago.

Analysts have been lowering their oil price forecasts for this year in recent weeks. JPMorgan expects the average price of Brent crude to be $58 per barrel this year and that of U.S. benchmark crude to be $54 per barrel. The bank predicts even lower prices next year. Saudi Arabia cut the price of its crude oil sold to Asian buyers for the third consecutive month this week.

Regardless of changes in Venezuela’s production, analysts agree that low oil prices will persist, putting pressure on the profits and budgets of global producers. A sustained drop below $50 per barrel—the profitability threshold for many companies—could deal a heavy blow to the U.S. shale oil industry, which is a strong supporter of Trump. Many U.S. drillers have ignored the president’s calls to boost production and instead followed Wall Street’s demands for strict capital discipline.

Analysts estimate that Saudi Arabia’s crude oil production cost is less than $10 per barrel. However, according to Capital Economics, the country needs oil prices above $100 per barrel to bring its fiscal deficit down to zero. Riyadh is facing massive domestic spending commitments, which have widened the budget deficit and increased borrowing needs of the world’s largest oil exporter. The country’s "Vision 2030" plan aims to diversify its economy by stimulating growth in sectors such as tourism, entertainment and sports.

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