Venezuela's Oil Potential: US National Security and Shifting Global Flows

Key Quotes

"We have not seen any disruptions to oil production of Venezuela. Venezuela is an important oil producer I should say potential oil producer accounting for about 1% of global production but 20% of global reserves but so far no disruptions."

Daan Struyven explains that despite recent political developments in Venezuela, there have been no immediate disruptions to its oil production. Struyven highlights Venezuela's significant role as a potential oil producer, noting its substantial global reserves despite a smaller current share of global production.

"The reaction has been quite muted. Oil prices are up about a dollar or so and I think it makes sense that the reaction is muted because the short term effects are quite ambiguous and because we haven't seen any disruptions so far."

Daan Struyven observes that the market's reaction to the situation in Venezuela has been subdued, with only a slight increase in oil prices. Struyven attributes this muted response to the short-term ambiguity of the effects and the absence of any actual disruptions to oil supply.

"We think that Venezuela is producing around 800,000 kbd of oil at the moment that is just under 1% of global production. I think that the upside risk to oil production over the next year or so is around 300 to 400 kbd. Similarly, I think the downside risk of Venezuelan production is also 300 to 400 kbd."

Daan Struyven quantifies the current and potential short-term fluctuations in Venezuelan oil production. Struyven estimates current production at under one million barrels per day and suggests that both the upside and downside risks to production over the next year are in the range of 300,000 to 400,000 barrels per day.

"I do think these comments need to be taken seriously for two reasons: one, the long term commercial impact from higher Venezuelan production is very significant as it accounts for about one fifth of global reserves because the Venezuelan oil which is very heavy and rich in the premium diesel products is quite special."

Daan Struyven emphasizes the long-term significance of potential increases in Venezuelan oil production, citing its substantial share of global reserves and the unique characteristics of its heavy crude oil. Struyven explains that this heavy oil is particularly valuable for producing premium diesel products.

"The gold price is up nearly 3% today. I think the main reason is that the developments from the weekend confirm that we're living in a pretty fractured geopolitical environment where the US and China are competing for commodities and for power."

Daan Struyven connects the recent rise in gold prices to the broader geopolitical landscape, specifically the competition between the U.S. and China for commodities and global influence. Struyven suggests that the events in Venezuela underscore this fractured geopolitical environment.

"I would note that the US and China are the two major importers of Venezuelan crude and it's in geopolitical environment that central banks in China and other emerging markets I think have strong incentives to buy gold to diversify away from other currencies such as the dollar and to hedge the risk of geopolitical tensions and sanctions."

Daan Struyven explains the strategic rationale for central banks, particularly in China and other emerging markets, to increase their gold holdings. Struyven notes that both the U.S. and China are significant importers of Venezuelan crude, and in this geopolitical climate, gold serves as a hedge against currency diversification and geopolitical risks.