As U.S. President Donald Trump pushes a plan to bring Venezuela's oil production under U.S. control, the balance of power in the international crude market is shifting. Concerns are rising that if the United States restores Venezuela's oil fields and boosts output, the Organization of the Petroleum Exporting Countries (OPEC) could see its ability to manage the market significantly weakened.
On the 10th (local time), the Wall Street Journal (WSJ) reported that OPEC member nations, which have struggled to defend market share amid falling oil prices and weakening demand, now face a new variable in Trump's moves. Trump has openly favored low prices of about $50 per barrel and is said to be considering a plan to revive Venezuela's dilapidated oil fields to supply crude to the global market. In that case, in addition to its massive domestic output, the United States would also bring the production of Venezuela, a founding OPEC member, within its sphere of influence.
The market believes that while restoring Venezuela's oil industry will require considerable time and money, a gradual increase in production could deepen oversupply in the long run and add downward pressure on prices. Some OPEC members projected that if regulations are eased and foreign capital flows in, Venezuela's oil output could rise from under 1 million barrels per day now to around 2 million barrels within one to three years.
OPEC's internal dilemma is also deepening. Maintaining production cuts to defend prices could cost more market share, while increasing output could entrench low prices. David Oxley, head of climate and commodities economics at research firm Capital Economics, said, "The tension remains as countries try to manage their own interests without disrupting the market."
If Venezuela's output increase materializes, Saudi Arabia, which would be most affected in terms of prices and market share, is expected to maintain a wait-and-see stance for now. The view is that it could take years to repair Venezuela's aging infrastructure, and that U.S. corporations will demand legal stability and U.S. government guarantees before committing large-scale investments. Another factor cited is that Venezuelan crude, a high-sulfur heavy oil, is less commercially attractive.
Some Gulf states, however, see the possibility that if Trump's plan restricts crude supplies to China, Chinese demand could shift to Middle Eastern oil. Even so, there is little disagreement that if Venezuela's vast reserves come under U.S. control, OPEC's market management strategy could be structurally weakened.
JPMorgan analyzed that if the reserves of the United States, Guyana and Venezuela—led by U.S. corporations—are combined, the United States could bring about 30% of global crude production within its sphere of influence. The World Bank also said in a recent report that this shift could keep prices low for an extended period and reshape the power dynamics of the energy market.
International oil prices are down about 20% from a year ago. Brent is around $63 per barrel, and West Texas Intermediate (WTI) is trading at about $59. JPMorgan has repeatedly lowered its price outlook for this year and next.
Experts say the U.S. involvement in Venezuela is aimed more at expanding long-term market dominance than at short-term production gains. In that case, OPEC's weakening influence would be unavoidable, and analysts say the global crude market is likely to move away from the cartel-centered order and seek a new equilibrium.