An oil refinery in Puerto Cabello, Venezuela. The country currently produces around 800,000 barrels of oil a day, about just 1% of global output. — AP
US oil companies' shares closed higher on Monday, on investor optimism about potential access to Venezuela's vast oil reserves after President Donald Trump said the United States would take control of the South American nation following the arrest of its president Nicolas Maduro.
Venezuela holds the world's largest oil reserves, but production plummeted in recent decades due to mismanagement, limited foreign investment following the nationalization of its oil industry and sanctions.
The Trump administration plans to meet with executives from U.S. oil companies later this week to discuss boosting Venezuelan oil production, according to a source familiar with the matter.
The meetings are crucial to the administration's hopes of getting top U.S. oil companies back into the South American nation after its government, nearly two decades ago, took control of U.S.-led energy operations there.
The Trump administration has told U.S. oil executives in recent weeks that they would need to return to Venezuela quickly and invest significant capital in the country to revive the damaged oil industry if they wanted compensation for assets expropriated by Venezuela two decades ago, Reuters previously reported. Shares of Chevron, the only U.S. major currently operating in Venezuela's oil fields, ended 5% higher.
Meanwhile, U.S. refiners Marathon Petroleum, Phillips 66, PBF Energy and Valero Energy were up between 3.4% and 9.3%. Oil prices settled up $1 a barrel, with analysts noting that in a global market with plentiful supply, any further disruption to Venezuela's exports would have little immediate impact on prices.
Trump has said that the embargo on all Venezuelan oil exports would stay fully in effect for now.
Venezuelan crude is a heavy sour with high sulfur content, making it suitable for producing diesel and heavier fuels, albeit at lower margins compared with other grades, particularly those from the Middle East.
"This type of crude aligns well with the configuration of U.S. Gulf Coast refineries which were historically designed to process such grades," said Ahmad Assiri, research strategist at Pepperstone.
Chevron's existing presence in Venezuela under a U.S. 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 U.S. action could also pave the way for the return of assets seized by Venezuela in 2007 under late leader Hugo Chavez, analysts at J.P. 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 $10 billion, while Exxon's outstanding damages appear to be in the $2 billion range against their original claims that exceeded $15 billion," the analysts said.
Shares reflected the optimism, with Exxon Mobil and ConocoPhillips adding more than 2% each. Shares of oilfield services firms, whose technology would be crucial to boosting Venezuela's crude production, also climbed. Baker Hughes, Halliburton and SLB rose between 4% and 9%. Still, analysts cautioned that any meaningful recovery would likely 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 bpd last year, or roughly 1% of global supply. - Reuters
