By Arunima Kumar
US oil companies’ shares jumped on Monday, fuelled by the prospect of access to Venezuela’s vast oil reserves after President Donald Trump said the US would take control of the South American nation following the arrest of its president.
Venezuela has the world’s largest oil reserves, but production plummeted in recent decades due to mismanagement, sanctions and limited foreign investment after the nationalisation of its oil industry.
“We’re going to have our very large US oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, oil infrastructure, and start making money for the country,” Trump said on Saturday, after American forces seized Venezuelan President Nicolas Maduro from Caracas.
Shares of Chevron, the only US major operating in Venezuela’s oil fields, climbed 7.3% in premarket trading, while refiners Phillips 66, Marathon Petroleum, Valero Energy and PBF Energy were up by between 5% and 16%.
Oil prices, however, were largely flat on Monday, as ample global supplies continued to weigh on the market despite the uncertainty surrounding Venezuelan flows.
Trump has said the embargo on all Venezuelan oil exports will stay fully in effect for now. Venezuelan crude is a heavy sour with high sulphur content, making it suitable for producing diesel and heavier fuels, albeit at lower margins than other grades, particularly those from the Middle East.
“This type of crude aligns well with the configuration of US Gulf Coast refineries, which were historically designed to process such grades,” said Ahmad Assiri, research strategist at Pepperstone.
Chevron’s presence in Venezuela under a US waiver has positioned it as a potential early beneficiary of any policy shift, while refiners stand to gain from increased availability of heavy crude closer to home.
Return of assets
The US action could also pave the way for the return of assets seized by Venezuela in 2007 under late leader Hugo Chavez, analysts at JP Morgan said.
They said ConocoPhillips and Exxon Mobil have significant arbitration awards pending, which have a higher chance of recovery. “In total, ConocoPhillips has outstanding claims approaching $10bn, while Exxon’s outstanding damages appear to be in the $2bn range against their original claims that exceeded $15bn,” the analysts said.
Shares reflected the optimism, with ConocoPhillips rising 7.5% and Exxon up 4.3%.
Shares of oilfield services firms, whose technology would be crucial to boosting Venezuela’s crude production, also climbed. Baker Hughes, Halliburton and SLB were up between 7% and 9%.
Still, analysts cautioned that any meaningful recovery is likely to take time, given political uncertainty, infrastructure decay and years of underinvestment.
Venezuela was producing as much as 3.5-million barrels per day (bpd) in the 1970s, accounting for more than 7% of global output. Production slid below 2-million bpd in the 2010s and averaged about 1.1-million last year, or roughly 1% of global supply.
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