Who holds the reins of Venezuela’s oil currently? The implications of Maduro’s capture for energy markets

The capture of Nicolás Maduro has reignited interest in one of the globe’s most politically sensitive oil sectors, compelling investors to reevaluate who holds the reins on Venezuela’s crude reserves and if they can be revived after many years of deterioration.

At present, the situation may appear clear-cut. “Petróleos de Venezuela (PDVSA), the state-run oil corporation, oversees the bulk of the oil output and reserves,” stated Andy Lipow, president of Lipow Oil Associates.

The American energy company Chevron functions in the nation through its production and a partnership with PDVSA, while firms from Russia and China are also engaged through collaborations, yet “majority control remains with PDVSA,” Lipow noted.

Venezuela nationalized its oil sector during the 1970s, culminating in the formation of PDVSA. Oil production peaked at around 3.5 million barrels per day in 1997 but has since plummeted to an estimated 950,000 barrels per day, with roughly 550,000 barrels per day being exported, according to data from Lipow Oil Associates.

Should a more pro-U.S. and pro-investment government emerge in Venezuela, Chevron would be “optimally positioned” to enhance its role, asserted Saul Kavonic, leader of energy research at MST Financial. European firms like Repsol and Eni could also gain from their existing foothold in Venezuela, he added.

Any shift in regime could potentially disrupt the commercial channels that sustain Venezuelan oil exports, industry professionals cautioned.

“With it being uncertain at this stage who is in power in Venezuela, we may witness a complete stop in exports as buyers are unsure where to direct their payments,” Lipow stated. He noted that recent U.S. sanctions on a shadow fleet of tankers have critically impacted exports, leading Venezuela to curtail production.

The shadow fleet denotes tankers that function outside conventional shipping, insurance, and regulatory frameworks to transport crude from nations under sanctions. These vessels are frequently used to carry oil from countries like Venezuela, Russia, and Iran, which are subject to U.S. energy export restrictions.

Lipow anticipates Chevron to keep exporting 150,000 barrels per day, thereby limiting any immediate impact on supply. Nevertheless, he indicated that the broader uncertainty could introduce a short-term risk premium of about $3 per barrel.

This increase would occur within a market that many experts believe remains sufficiently supplied, at least for the time being. “The oil market is currently leaning towards oversupply,” remarked Bob McNally of Rapidan Energy Group, deeming the immediate effect “almost trivial.”

Venezuela’s long-term significance hinges on the quality of oil it produces. The nation’s heavy, sour crude can present technical extraction challenges but is sought after by complex refineries, especially in the U.S. “American refineries… relish that thick oil from Venezuela and Canada,” McNally stated.

“The real concerns are, can the oil industry re-enter Venezuela and reverse two decades of deterioration and neglect to restore it to functionality?”

If a new government under opposition leader Maria Corina Machado is quickly established, sanctions might lessen, and oil exports could initially increase as stored oil is utilized for revenue generation, Lipow noted. However, he cautioned that a short-term spike might exert pressure on prices.

Nevertheless, any perspective of a sustained recovery confronts substantial physical limitations. “The Venezuelan oil sector is in such disrepair that even with a governmental change, it is improbable to see any significant rise in oil production for years as considerable investments are needed to restore the current infrastructure,” he observed.

In parallel, RBC’s Helima Croft cautioned that the road to recovery is extensive, highlighting Venezuela’s “decades-long decline under the regimes of Chávez and Maduro.” She mentioned that oil executives believe it will require at least $10 billion annually to revitalize the sector, with “a reliable security landscape” being a crucial prerequisite.

“All bets are off in a disorderly transition of power scenario akin to what transpired in Libya or Iraq,” she remarked.

— CNBC’s Chery Kang and Martin Soong contributed to this article.