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Chart of the month: Venezuelan oil in focus
Over the past decade, oil production from the world’s largest known reserves has declined. Could that be about to change?
Venezuela’s vast oil reserves – among the largest globally – are back in focus, and estimated at just over 300 billion barrels. Given global consumption of 100 million barrels per day, that’s around eight years of global demand. However, as the chart shows, output has fallen more in Venezuela over the past decade than in any other major oil producer. The reason? An inter-related combination of sanctions, corruption and lack of investment have held back production.
In 2024, Venezuela is estimated to have produced under one million barrels per day. That’s down from nearly three million a decade ago. Industry estimates are that around $100bn of investment is needed to get production back up to those levels. We believe that this investment would be likely to pay off if investors can be assured of receiving the associated cashflows. At $50-60 per barrel, an estimated extra two million barrels per day is potentially worth $35-45bn per annum.
Around two-thirds of Venezuela’s oil exports have gone to China in recent years with less than a quarter going to North America[1]. Different types of oil are not completely fungible, however Venezuela’s heavy-sour crude competes with output from Canada in the production mix.
What are the investment implications?
While oil prices remain firm in the very short term, they have been on a downward trajectory ever since mid-2022 and the prospect of oversupply looms large. Our US-based analysts anticipate that spot prices could potentially hover in the $50 range for an extended period, challenging the tight valuations of U.S. oil majors.
Past performance is not a guide to the future. Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.
[1] Source: https://www.eia.gov/international/analysis/country/VEN
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