Venezuela's Oil Resurgence: A Global Game-Changer?

JPMorgan's report suggests Venezuela could become a major oil supplier in the next decade following political changes. With potential increased production, it could impact global markets, keeping prices low. US engagement may revitalize investments. Yet, initial political shifts might cause disruptions amid discussions on strategic implications for energy security.

Venezuela could position itself as a leading oil supplier within the next decade, transforming global energy dynamics if it undergoes a political transformation, JPMorgan stated in its recent report. JPMorgan highlights that a regime change in Venezuela poses a significant upside risk to global oil supply beyond 2026. Currently, the market is not pricing this potential development.

The report suggests Venezuelan crude production, now approximately 750,000-800,000 barrels per day, could increase to 1.3-1.4 million barrels per day within two years post-transition. With consistent investment, output might hit 2.5 million barrels per day, harking back to its 1990s peak of 3.5 million barrels daily.

In a related development, former US President Donald Trump announced plans for interim Venezuelan authorities to send 30-50 million barrels of sanctioned oil to the US. The oil will be sold at market rates, with proceeds managed under presidential oversight to aid both nations. This move underscores renewed US interest in Venezuela's oil capabilities.

Trump stressed the importance of executing this plan immediately, seeing US Energy Secretary Chris Wright tasked with overseeing the operation. Discussions are ongoing about encouraging American energy corporations to reinvest in Venezuela, rehabilitating its depleted infrastructure after years of sanctions.

Experts note that US oil giants like Chevron, ExxonMobil, and ConocoPhillips could reinvest in Venezuela if political conditions stabilize. European firms such as Repsol and Eni, and companies from India and Latin America, might also return if existing issues like payment disputes are settled. JPMorgan warns, however, that a political transition might cause initial disruptions due to potential operational uncertainties.

Beyond supply, JPMorgan highlights the geopolitical weight of a Venezuelan rebound. Venezuela boasts the world's largest oil reserves, suggesting a shift in global energy influence towards the Western Hemisphere. This strategic shift could bolster US leverage over oil prices, thus enhancing US energy security and maintaining lower oil price ranges.

Despite these potential shifts, JPMorgan projects a bearish outlook for future oil prices, forecasting Brent crude to hover in the low $60s by 2026, as non-OPEC output rises and Venezuelan oil emerges on the market stage.

(With inputs from agencies.)