Share prices for US oil major Chevron surged as US markets opened on Monday, although investors warned that the long-term effects of the Trump administration’s intervention in Venezuela remain far from clear.
Chevron, the only US oil company still operating in Venezuela, saw its shares rise by more than 8% following reports that the Trump administration had moved against Venezuelan president Nicolás Maduro. The news marks the end of a nine month slump for the oil major, which, like its peers has struggled amid a global drop in oil prices.
Venezuela holds the world’s largest reserves of heavy oil. However, industry analysts cautioned that US intervention is unlikely to deliver long-term benefits for the oil major.
One reason is that making Venezuelan oil production commercially viable would require significant upfront investment. Morningstar’s director of equity research, Allen Good, estimated that tens of billions would be needed to lift output.
Oil companies will need to be cautious about deploying capital until there is greater regulatory and contractual certainty, he said. While Chevron may be able to add incremental production in the near term with US approval, meaningful increases in volumes are likely to be years away. As a result, the prospect of US companies developing Venezuela’s oil reserves remains far from certain.
Henry Tarr, analyst at Berenberg warned that rising oil production could further bring down global oil prices. "Overall this should increase the likelihood of higher oil production in Venezuela which would be negative for oil prices in the medium term" he warned.
John Wyn-Evans, head of market analysis at Rathbones, also warned that any increase in output could put pressure on global oil prices. Over the past year, crude prices have fallen from more than $70 a barrel to around $58.
While Venezuela claims around 17% of proven global oil reserves, unlocking that potential would require vast investment in infrastructure, he said. In addition, its heavy crude delivers lower refining margins than Brent or WTI, making any immediate surge in supply, and the associated deflationary impact, highly unlikely.
Chevron has so far declined to comment on any investment commitments, instead stressing that it remains focused on the safety of its employees and the integrity of its assets, reflecting heightened geopolitical risks.
