Despite Massive New US-Venezuela Oil Deal, Fuel Prices Remain Unaffected

When United States President Donald Trump announced what he termed "the biggest oil deal in world history" with Venezuela on August 28, he claimed the agreement would "more than double" US oil reserves and "substantially lower gas prices for all Americans." Venezuela holds the world’s largest proven oil reserves, estimated at 303 billion barrels, or roughly 17 percent of the global total according to the US Energy Information Administration. However, the nation's oil consists of heavy, sour crude, making extraction and refining both difficult and costly. While US Gulf Coast refineries possess the capability to process this specific variety, industry analysts caution that Washington’s arrangement with Caracas will fail to reduce crude prices in the US in the near term.

Last week, the administration announced an agreement granting the US control over more than 65 billion barrels of Venezuela’s proven oil reserves, representing over one-fifth of the country's known reserves. According to a White House fact sheet, this will be achieved by establishing a private joint venture alongside North American Blue Energy Partners (NABEP), a firm owned by billionaire Venezuelan businessman and former Hugo Chavez ally Alejandro Betancourt. NABEP already functions as the second-largest operator in Venezuela following US oil giant Chevron, which is also positioned to scale up its local operations.

The Pentagon’s Office of Strategic Capital will secure a 35 percent stake in NABEP, which the White House noted will feature "reputable US auditors, lawyers, and advisors." Furthermore, the White House stated that "millions of barrels of new Venezuelan output will be processed through US refineries and pumped with American rigs and infrastructure, supporting billions in investment in the United States and thousands of jobs here at home." The US will also retain a guaranteed right to purchase 20 percent of the output at cost. This joint venture possesses a production capacity of approximately 200,000 barrels of crude oil daily, boosting US output as Iran’s blockade of the Strait of Hormuz drives up global and domestic energy costs.

Venezuela’s interim President Delcy Rodriguez welcomed the arrangement, which is anticipated to inject vital funds into the state treasury while easing operational hurdles for NABEP inside a nation still subject to US sanctions. Washington has imported substantial quantities of Venezuelan oil since President Nicolas Maduro was detained during a US military operation in January and transported to the US to face weapons and drug charges. Vice President Rodriguez assumed the role of interim leader, subsequently facilitating US entry into the domestic oil sector, which prompted the US to lift personal sanctions against her. In August, US Under Secretary of Energy Kyle Haustveit reported that over 500,000 barrels per day (bpd) are now being transported from Venezuela to the US, accounting for roughly 40 percent of the nation's 1.25 million bpd total output.

Despite these developments, analysts point out that US crude prices have actually climbed since the announcement. Johannes Rauball, a senior crude oil analyst at Kpler, observed that prior to the agreement, US West Texas Intermediate (WTI) crude traded between $83 and $86 per barrel, while the international benchmark Brent crude hovered at $85 to $88. Prices have since surpassed $90 for WTI and $95 for Brent, propelled primarily by escalating geopolitical tensions and supply disruptions near the Strait of Hormuz. On Thursday morning, WTI futures rose 61 cents, reaching $90.83.

According to Rauball, although the pact could enhance long-term supply and market sentiment, immediate price reductions are hindered by practical extraction hurdles within Venezuela. He noted that severe physical bottlenecks, aging infrastructure, degraded pipeline systems, weak electrical grids, and a scarcity of specialized crude upgraders mean a meaningful production increase will require years. Additionally, US refiners are already operating at peak capacity to satisfy domestic and international demand, leaving little room for expansion.

Tracy Shuchart, a senior economist at NinjaTrader, emphasized on social media that the reserve figures represent a stock that will take decades to convert into active flow, noting that the easily accessible barrels have already been recovered. Meanwhile, Iran's closure of the Strait of Hormuz—through which over 20 percent of global oil and gas normally travels—has severely disrupted energy markets, pushing Brent crude above $100 shortly after the closure and to $95.68 recently.

Frederic Schneider of the Middle East Council on Global Affairs noted that the conflict with Iran removed at least 10 million barrels per day from the market through Hormuz, a loss Venezuela cannot replace, particularly given its heavy, sour crude competes primarily with Canadian and Mexican imports rather than lighter Gulf oil. Hamad Hussain of Capital Economics added that developing Venezuelan oilfields demands immense investment and time, while potential political instability and high costs may deter investors. Moreover, specialized refining requirements limit processing capabilities mostly to the US, China, and India, leaving European refiners with little interest.

US oil companies are projected to reap the primary benefits of the agreement. Following the announcement, shares of Chevron rose 2.2 percent to $206.20. US Energy Secretary Chris Wright indicated that several additional firms, including Italy’s Eni, India’s ONGC, Colombia’s GeoPark, and the US-based GE Vernova, are expected to sign deals in Caracas to boost production. While Venezuelan output plummeted from over 3 million bpd in the late 1990s due to mismanagement, lack of investment, and sanctions, it has hovered between 1.1 million and 1.2 million bpd recently. Wright maintained that increased investment will eventually exert downward pressure on prices, though refining capacity remains the primary bottleneck for gasoline and diesel costs.