President Donald Trump’s overthrow of President Nicolas Maduro in oil-rich Venezuela is unlikely to shock energy markets in the near term, analysts told CNBC on Saturday.
While the scale of the U.S. attack was unexpected, markets had already priced in a conflict with Venezuela that would disrupt oil exports, said Arne Lohmann Rasmussen, chief analyst and head of research at A/S Global Risk Management.
Venezuela, a founding member of OPEC, has the largest proven oil reserves in the world. But the South American nation currently produces less than a million oil barrels a day, which is less than 1% of global oil production, according to Rasmussen.
It exports just about half its production, or some 500,000 barrels, Rasmussen said. The conflict also comes as the global oil market is oversupplied and demand is relatively weak, a pattern that is customary in the first quarter of the year, he said.
Rasmussen estimated that Brent crude prices will only rise by about $1 to $2, or even less, when futures trading opens on Sunday night. He projected that Brent will edge lower next week than where it closed on Friday, which was $60.75.
“Despite this being a huge geopolitical event that you would normally expect to be positive or push up oil prices,” he said, “the bottom line is there’s still too much oil in the market, and that’s why oil prices will not go ballistic.”
Analyst Bob McNally of Rapidan Energy said he was advising clients before the weekend that about a third of Venezuela’s oil production was at risk. While he does not predict that all of Venezuela’s output would be cut off, he told CNBC that it would not pose a meaningful risk to oil markets in the short term.
The oil market in 2025 posted its biggest annual decline in five years. The global benchmark Brent fell about 19% last year, while U.S. crude oil lost nearly 20%.The market has been under pressure as OPEC+ ramped up production after years of output cuts. The U.S. also produced at a record level of just over 13.8 million barrels per day.
Oil prices may decline further as the regime overthrow raises the possibility of eventually boosting oil production in Venezuela, analysts told CNBC.
Saul Kavonic, head of energy research at MST Financial, estimated that exports could approach 3 million barrels in the medium term if a new Venezuelan government led to the lifting of sanctions and the return of foreign investors.
“If anything, the future of Venezuela will have a bearish impact on the market, because there’s really nowhere to go but up,” said energy industry consultant David Goldwyn, a former top State Department energy official in the Obama administration.
Currently, the embargo on Venezuelan oil is still in effect, Trump said during a press conference Saturday. He also said that U.S. oil companies will invest billions of dollars to rebuild Venezuela’s energy sector. Trump did not provide details on which companies would invest or how, nor did he clarify how the U.S. would temporarily run Venezuela “with a group.”
Goldwyn said it is hard to predict whether U.S. oil companies will invest, given the uncertainty about the interim and future governments in Venezuela.
“Everything we have learned about government transitions from Iraq, from Afghanistan, from other countries, is that transitions are hard,” he said. “No company is going to want to commit to invest billions of dollars for a long-term operation until they know what the terms are. And they can’t know what the terms are until you know what the government is going to be.”
Goldwyn added that companies, including Exxon Mobil, are still waiting to collect on debt owed by Venezuela’s national oil company, Petróleos de Venezuela S.A. (PDVSA).
Rapidan Energy’s McNally said it is a complicated proposition for U.S. oil companies. Oil producers have not forgotten being kicked out of Venezuela in the early 2000s, when the country expropriated the assets of foreign oil companies, he said. That said, accessing the world’s largest oil reserves would be “tantalizing” to U.S. oil companies if sanctions were lifted, he added.
But it would take decades of investment and billions of dollars, McNally said. Whether it’s worth it comes down to one central question, he said: Does the world need that much oil?
“Until late last year, the market consensus had been that demand for oil is going to stop growing in four years. It’s over because of EVs and fuel efficiency policies and climate change policies,” McNally said.
But as the U.S. and other nations, including China and Canada, weaken their climate policies and sales of electric vehicles fall, the prospect of investing in Venezuela has become much more attractive.
“All of a sudden you’re starting to say: “Whoa, we’re going to need more oil,” he said.
— Additional reporting contributed by CNBC’s Victor Loh