Q&A of the Day – How Venezuela's Future Will Impact Oil & Gas Prices

If all other factors were equal to what we see in the marketplace today, if Venezuela were producing at what’s known to be able to be achieved, gas prices, for example, would decrease by aproximatley 20% from current levels based on what are known as elasticity models. Based on current usage/demand and prices – it could bring annualized savings of over $400 per household in today’s dollars. 

Episode Transcript

Speaker 1 (00:04):
You have questions, Brian has answers. It's time for today's
Q and A of today. This is the Brian Mud Show.
Today's QMA how Venezuela's future will impact oil and gas prices.
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(00:25):
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(00:46):
a question for future Q and A even today's note
is this at Brian Mudradio. If Venezuela produces what it's
capable of producing, how much oil is it and what
would it do for prices? Okay, it's a really good question.
But actually already we have a massive development on this
particular topic. Here is Fox's Kristin Goodwin with the report

(01:10):
about what President Trump is up to.

Speaker 2 (01:13):
President Trump, taking to truth Social to reveal interim authorities
in Venezuela will be turning over between thirty to fifty
million barrels of high quality, sanctioned oil to the US,
adding this oil will be sold at its marketplace, and
that money will be controlled by me as President of
the United States of America, to ensure it is used
to benefit the people of Venezuela and the United States.

(01:36):
The President goes on to say, I have asked Energy
Secretary Chris Wright to execute this plan immediately. It will
be taken by storage ships and brought directly to unloading
docks in the United States.

Speaker 1 (01:47):
And again, so talking about sanctioned oil, in particular oil
that's already out there that unlawfully was being shipped. Now,
this question about what the yet look here is oil
and energy one of the most important because it pertains
to what the future for Venezuela looks like, what the
quality of life for Venezuelans could be, and also whether

(02:10):
American companies will choose to invest the untold billions of
dollars needed to ramp up operations in the country. Once again,
also carries with it the possibility creating greater price to
bility and affordability in the oil and gas markets permanently.
So the first part of the question is easy to answer.
The second part in a little bit more complicated. So
let's take in Venezuela holds the world's largest proven oil

(02:35):
reserves at over three hundred billion that is billion with
a bee barrels. That highlights the strategic importance of the country,
which has most recently been aligned with China, Russia, Iran,
North Korea, Cuba, and Nicaragua. I see you want to
say it, go for it. Chill a little rocketman. By

(02:56):
way of comparison, he's with North Korea. Yes, that's right.
In comparison, Saudi Arabia, the country with the second largest
proven reserves, has two hundred and sixty seven billion barrels
of oil that it's yet to tap. All right, So
that is just kind of like the big picture long term,

(03:16):
will all be dead multiples of times over before that
even comes to the question how much oil as for
the United States. To put this in further perspective, massive
oil producer, Right, we are once again the world's top
energy produce. We have forty seven point seven billion proven

(03:38):
barrels of oil reserves, forty seven point seven. Again, Venezuela
is at three hundred. So in total, Venezuela's oil represents
seventeen percent of the world's total known oil reserves. But
what Venezuela has in the reserves barely being touched these days.

(03:58):
Four perspective. While Saudi Arabia produces approximately ten million of
the eighty five million barrels of oil produced worldwide per day,
recent daily production in Venezuela based on OPEG data, is
approximately nine hundred thousand barrels per day. That's it, and

(04:19):
so it illustrates in part these significant disconnect between Venezuela's
potential and the actual output. It's a massive decline from
historical levels. To give you an idea, the point where
the commedies took over, where Chavez ended up seizing power
and instituting socialism communism. The late nineties, when Shavez took over,

(04:42):
production was over three million barrels per day in Venezuela.
So output has slowly and steadily declined ever since due
to under investment and mismanagement by the state controlled entity.
It's worth noting that geographical differences and food quality do
differ significantly between Saudi Arabia and Venezuela that can impact

(05:05):
output levels. In other words, it's not a given that
Venezuela could just necessarily rival the daily Saudi output despite
having larger reserves. At the same time, newer technology and
operational efficiencies could likely lead to even greater production capabilities
today compared to nearly thirty years ago. So let's say

(05:25):
conservatively that Venezuela were simply brought back up to the
production level standards that existed at peak production in the
late nineties. Here's what that would look like. Short term,
analysts believe that you could get production to one point
four million barrels per day pretty easily, with up to

(05:48):
two million possible again over the short term, and this
would be ramping up existing operations, fixing some things, mainly
led by Chevron, which which is the lone US company
that still exports Venezuelan and oil. Then you take a
look at the medium term, this would be up to

(06:08):
five years, basically two to five years, restoring previous production
levels possible at that point, getting back to around that
three million barrel per day mark. And then the long term,
which would be over five years. It's believed that up
to four million barrels per day could be produced in
Venezuela that would exceed the previous peak production. So all

(06:28):
of those outcomes require billions and new investment to achieve,
with estimates into the hundreds of billions to hit those
long term targets. Now, what would that mean for oil
and gas prices. Well, Venezuela's current output represents only about
one percent of the daily production. Over the near term,

(06:52):
that can be brought up to one point six percent
of the world's production, with about five percent possible with
longer term commitment Vincent place, So that's the quantifiable part
of this question. The more challenging question is what the
longer term impact would be on prices and the reason
for that without getting into the weeds regarding the different

(07:13):
types of crude and different prices based on quality. Price
outcomes would be a factor of the amount of demand
for patrollum products and also whether other oil producing nations
would consider lowering daily production to offset an increase in
energy supply from Venezuela, as OPEC has been known to

(07:35):
historically do to try to prop up energy prices when
they're lower than where they want them now. While those
are unknowns until we get there. Obviously, having greater capacity
in Venezuela would improve the potential out for lower prices
and price stability over time. Moreover, if Venezuela's policy interests

(07:57):
were aligned with US interests, it's likely the case that
the country wouldn't be implying to tow the OPEC production guidelines. So,
in other words, the US, through our own production and
Venezuelan imports, would likely have all of the energy we
would ever need, independent of other operating levels. Now, prices

(08:19):
depend on those factors, along with the value and the
strength of the US dollar in the future, would that said,
with all other factors, if they were equal to what
we see in the marketplace today, if Venezuela were producing
what's known to be possible what I just laid out,

(08:40):
gas prices, for example, would decrease by approximately twenty percent
from current levels based on what are known as elasticity models. Okay,
so all other things being equal, what would this mean
to you? Twenty percent cheaper gas prices than what you
are paying today, a number that would bring annualized savings

(09:03):
of over four hundred dollars per household in today's dollars