US unveils strategy on Venezuelan oil, triggering rush for access

By Mia Gindis

 

Oil traders and US refiners are rushing to position for access to Venezuelan crude after the Trump administration said it would take control of as much as 50 million barrels, one of the largest unexpected supply flows in years.

 

The US strategy — announced initially in a late-night social media post Tuesday from President Donald Trump and more details coming Wednesday from Energy Secretary Chris Wright — thrusts the federal government into direct involvement in the international oil market and promises to reinvigorate flows of Venezuelan crude to American refineries after years of sanctions.

 

The return of Venezuelan barrels to US buyers could mark one of the most significant shifts in global energy markets in recent years. It has already sent Canadian crude prices plunging and weighed on benchmark oil futures. The country has the world’s largest oil reserves, but its production has slumped below 1 million barrels a day after decades of underinvestment, trade sanctions and economic isolation. 

 

“It’s quite extraordinary that the United States is going to control Venezuelan oil sales indefinitely,” said Carolyn Kissane, an associate dean at the Center for Global Affairs at New York University, where she teaches about energy and climate change. 

 

Trump said in a New York Times interview published on Thursday that the US would be running Venezuela and extracting its oil for years. “We will rebuild it in a very profitable way,” he told the newspaper.

 

The US moves have prompted a flurry of interest from previously sidelined players as well as the select few that have been able to continue operations in Venezuela.

 

Citgo Petroleum Corp., the US refiner indirectly owned by Venezuela, is considering resuming purchases for the first time since US sanctions cut off its supply in 2019. Trading giant Trafigura Group and others will hold talks with the US government about how they can return to buying crude from Venezuela and supplying fuel to the country, said the firm’s global head of oil. 

 

The potential access to Venezuelan oil also helped send shares of US refining giants surging, with Valero Energy Corp. climbing more than 5 per cent intraday to an all-time high. Oil major Chevron Corp. is also in talks with the US to extend the crude producer’s special license to operate in Venezuela. 

 

While top US oil companies are set to meet with Trump at the White House in coming days, several drilling firms are still likely to be wary of a quick return or entry into Venezuela without assurances and clarity about the political and legal landscape, analysts said. 

 

“I have a very hard time believing that companies are going to be willing to take the very high levels of risk associated with going in beyond the offshore,” Kissane said.  

 

Still, this week’s moves by the Trump administration show that the US energy dominance agenda at least partially includes direct intervention in global oil markets.   

 

“The United States government has begun marketing Venezuelan crude oil in the global marketplace,” the Energy Department said in a fact sheet Wednesday. “We have engaged the world’s leading commodity marketers and key banks to execute and provide financial support for these crude oil and crude products sales.” 

 

As part of the effort, the agency said it would selectively roll back sanctions to enable the transport and sale of Venezuelan crude and oil products to global markets. The changes would also allow the import of select oil field equipment, parts and services.

 

“It’s worth noting that governments have already been actively influencing crude prices through SPR sale and repurchase programs, effectively creating implicit price bands,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. 

 

“While the current situation represents a much larger and more direct intervention, it follows a clear progression in policy tools over the past several years,” she added. 

 

Even as parts of Washington’s strategy come into focus, tensions remain high in the region. US forces moved to seize two more sanctioned oil tankers this week, reinforcing Washington’s energy quarantine of Venezuela via a blockade.