The slowdown in Chinese demand amid growing global crude supply could be more worrying variables for the future of Venezuelan oil than Donald Trump's threat to suspend the permit given to the American company Chevron to exploit and export Zulia crude from the Boscán block to the US.
In statements given during his first press conference after the electoral victory, and after months without mentioning Venezuela, the president-elect demanded that the government of the also president-elect Nicolás Maduro receive the Venezuelans who will be deported and, although he did not explicitly associate both ideas, he alluded to the fact that not receiving immigrants would imply withdrawing the US oil companies that operate in the Homeland of Bolívar.
“We don’t have to buy oil from Venezuela,” he said. “We have 50 times more than they have. It’s really incredible how much we have. This time we have a very big advantage that we didn’t have in the previous term.”
So Trump is talking as if all oils were the same, boasting that he could suspend Chevron's license to stop importing Venezuelan Merey-type sour oil, which feeds some of the main refineries in the Gulf of Mexico. The question is: How easy or difficult is the process to make this decision?
The International Energy Agency, IEA, points out that last October the United States imported 279.000 barrels of Venezuelan oil per day, a figure with which Venezuela climbed to fourth place with the highest volume of crude oil placed in that country, after Canada with 3.6 MMBD, Mexico 393 MBD, Saudi Arabia 287 MBD; and above Colombia 210 MBD, Brazil 198 MBD, Iraq 194 MBD, Guyana 189 MBD and Ecuador 128 MBD.
These are the latest figures. Based on them, American businessmen are quietly putting pressure on President-elect Donald Trump to abandon the “maximum pressure campaign” against Venezuela in his second term and reach an agreement with Venezuelan President Nicolás Maduro, The Wall Street Journal reports.
A deal with Venezuela's government would fulfill two key Trump campaign priorities, lobbyists say: reducing illegal immigration and lowering energy prices for American consumers.
The Wall Street Journal says that instead of seeking a change of government in Venezuela by intensifying sanctions, which further impoverish people fleeing Venezuela and many of whom end up in the United States, the new US administration should seek negotiations with the Venezuelan president's government that would allow the flow of Venezuelan heavy oil to the United States.
Some businessmen, such as Harry Sargeant III, a billionaire donor to the Republican Party, are calling for a deal with Venezuela. “There is no question that the renewed flow of high-quality, low-cost Venezuelan asphalt to the United States has been a boon to the American taxpayer,” Harry Sargeant IV, son of Harry Sargeant III and president of the Sargeant Company, which recently imported 43.000 barrels of liquid asphalt from Venezuela, told the WSJ.
"It has been a blow to our strategic competitors because under sanctions these barrels have been converted into heavily discounted fuel that simply subsidises the Chinese economy," he added.
Another approach is that of Alex Vallenilla, who in his article titled Will Trump stop buying oil from Venezuela?, published on December 17 in Finanzas Digital, explains that for weeks the president-elect has been saying that he will stop buying oil from Venezuela and that he does not need oil from Saudi Arabia based on the high oil production in the United States, using "fracking" technology.
“The majority of oil produced by the United States is for export. There are some limitations to this. After the 2008 financial crisis, the price of oil never fell below $50 again, except when it was below zero, in the midst of the Covid-19 pandemic. To maintain the “fracking” operations, crude oil must be priced above $60, or the operations will not be profitable. It is no coincidence that, in the midst of the war between Ukraine and Russia, the maximum sale price allowed to the Russians is $60 per barrel.”
Vallenilla points out that “It is not that the United States produces a lot of oil. Or that Venezuela is “irrelevant,” as some sectors claim, more due to political bias than technical reasons. Rather, it is due to ignorance. The problem is not in production, but in the costs of transportation due to the regulations on cabotage in that country. Since 1920, the Jones Act has existed, which establishes tough and firm restrictions for North American coastal trade, within measures that prioritize national security over trade itself. For North Americans, it is cheaper to import oil than to consume their own, precisely because of the regulations. Foreign ships that export and import oil to and from the United States are not subject to such regulations.”
He explains that in order to transport oil from Texas to any part of the United States, American ships must be used, built in shipyards in that country, owned by American capital companies and shareholders. The crew must also be entirely American, or at least 75% of it. The rest must have ties to Americans. This implies a chain of very high costs, starting with salaries. An oil worker in the United States earns 10 to 15 times more than one in Venezuela, for example. There is a reason why Chevron exploits oil in Venezuela. It is a matter of costs, not of whims or political or ideological biases.
He points out that transporting oil through the pipeline network is not sufficient, with great disadvantages to California. It is still done by railroads, using the same railroad tracks as the passengers. The construction of new pipelines is not a profitable option now, and even less so in a world in which the technological sector threatens the oil sector with the electric car.
According to research in the United States, if the Jones Act were repealed, the cost reduction would be insignificant. Although 36% of foreign oil consumption would be reduced, it would still be necessary.
Apparently, removing a law that is more than 100 years old would change the whole system. Even though Trump declared himself anti-system, the experiment would have effects in the future. It is not in vain that in 2016, the Americans decided to end the ban on the export of their oil production, established in 1975 in the midst of the Arab oil embargo. It must be repeated: it is cheaper to sell American oil abroad, using foreign ships.
In addition, for now, Venezuela and Guyana are pumping crude oil that is once again boosting the levels of the US Strategic Petroleum Reserves (SPR). According to the latest report from the Department of Energy, there are 393 million barrels as of today. These were at 346,59 million barrels in July 2023. The recovery of the SPR accelerates from October 2023, when Chevron receives an extension of licenses, as well as foreign service companies, to operate in Venezuela, within the framework of a détente between the White House and Miraflores.
“To bring the SPR to the levels of 700 million barrels, prior to the war between Ukraine and Russia, it could take at least seven or eight years, maintaining the current pace and with stable prices. Unless Donald Trump is thinking of breaking the entire system that exists in his country, just to stop buying oil from Venezuela, his announcement would be very well founded, or we are facing a reissue of ads that only serve to get “likes” or “RT” on the social media accounts of some political leaders.”
To this uncertainty about the decision that Trump could take regarding the purchase of Venezuelan crude oil, we should add another, more structural nature of the world market, regarding the future import of oil by China.
China's Sinopec Petrochemical Corp has predicted that China's oil consumption will peak in 2027 at around 16 million barrels per day, when the giant Asian country will produce 4 million barrels per day and refine 18 million barrels per day.
Indeed, the IEA reports that while the market is closely assessing ongoing geopolitical tensions and evolving OPEC+ supply dynamics, the biggest question for 2025 remains global oil demand.
“The abrupt halt in Chinese oil demand growth this year, coupled with markedly smaller increases in other notable emerging and developing economies such as Nigeria, Pakistan, Indonesia, South Africa and Argentina, has tilted the consensus toward a softer outlook.”
He adds that in a break from recent trends, oil demand from countries outside the Organisation for Economic Co-operation and Development, or OECD, the so-called organisation of rich countries, in the third quarter of 2024 increased by only 320 MBD year-on-year, its lowest quarterly growth rate since the peak of the pandemic, while OECD countries recorded an increase of 190 MBD year-on-year in the same quarter.
“The relatively subdued pace of global oil demand growth is projected to continue in 2025, accelerating only modestly from 840 mbd in 2024 to 1,1 mbd, with overall consumption reaching 103,9 mbd. Persistent overproduction by some OPEC+ members, solid supply growth by non-OPEC+ countries, and relatively modest growth in global oil demand mean that the market appears comfortably supplied in 2025.”
Excellent article. I love it because it has knowledge on the oil issue and it helps me understand a little about it.
Brilliant columnist, congratulations
Very well supported analysis of the 2025 projections.
Better, impossible
Excellent article.