President Donald Trump is touting the deal to acquire a vast stake in Venezuela’s oil reserves as a game-changing breakthrough that will drive down prices at the pump and begin to refill depleted emergency government oil inventories in the United States, The Washington Post reported.
But many in the oil industry are warning not to expect quick relief — that extracting this oil will be a dangerous, laborious and costly endeavor, and it’s not clear how it’s all going to come together.
Among the little the White House has shared publicly about the deal is that it gives the U.S. government a 35 percent stake in a Venezuelan oil production company, which is gaining contracts to operate 17 oil fields with estimated reserves of about 65 billion barrels. The U.S. will maintain rights to purchase the extracted oil.
Even if the opaque, controversial agreement announced Friday night triggers a surge of investment in oil production, industry insiders and analysts say substantial amounts of new crude would not flow out of Venezuela for years.
That much was evident in the shrug with which oil traders responded to the deal. Prices didn’t come down at all over the weekend. They went up. On Tuesday, prices rose again, and bond yields were surging, driven by renewed concerns over the Iran war.
The reserve is a crucial inventory the U.S. can use in times like the wars in Iran and Ukraine to help stabilize prices when there is a shortage of crude globally. It is equipped to hold as much as 714 million barrels of crude in massive salt caves in Texas and Louisiana.
That stockpile has been greatly depleted by the administrations of both President Joe Biden and Trump. Its inventory has fallen to just 287 million barrels, creating economic and national security concerns.
To help start replenishing the reserve quickly, the agreement offers a discount to the U.S. on some of the oil its Venezuelan partner is currently producing. “The ‘topping out’ process will begin very shortly, and is a Gift from Venezuela to the People of the United States,” Trump said over the weekend.
But the Venezuelan company’s total production right now is only 200,000 barrels per day. Even with the planned ramp-up, it would take years to replenish the SPR with Venezuelan oil under the terms of the deal.
Source: The Washington Post