Trump locks down Venezuela's natural oil reserves! Experts throw cold water: gas stations across the US will still welcome the “most expensive Labor Day in history”

The Zhitong Finance App learned that energy industry experts said that American drivers will not experience a drop in oil prices due to the huge oil agreement reached between US President Trump and Venezuela, because it will take years to drastically increase the country's production.

Trump announced on Friday that the US has taken control of Venezuela's 65 billion barrels of proven oil reserves, accounting for about 20% of the South American country's estimated total reserves of 303 billion barrels.

However, experts say extracting these reserves requires huge investment. At the same time, since the Trump administration has yet to announce the specific terms of the agreement, there is uncertainty about the legality and long-term viability of the agreement signed with Caracas (the capital of Venezuela).

David Goldwin, who served as the State Department's special envoy for international energy affairs during President Barack Obama's tenure, said, “No substance has been released yet, so we are actually still making judgments based on the X platform and rumors.”

Trump promised on Friday that the deal would “drastically reduce gasoline prices for all Americans for a long time to come.” According to data from the American Automobile Association (AAA), the average price of gasoline in the US was 4.08 US dollars per gallon on Monday, up nearly 30% from the same period last year.

Oil prices have been rising due to Ukraine's attacks on Russian refineries and supply disruptions in the Middle East caused by the Iran war. Patrick DeHaan, head of petroleum analysis at GasBuddy, said it is almost a foregone conclusion that gasoline prices hit a record high during Labor Day. De Haan pointed out that the previous Labor Day record was $3.83 per gallon in 2012.

“Unless there's a miraculous drop of 20 cents per gallon — which is next to impossible — it's going to be a record Labor Day by the national average,” De Haan said. “Unfortunately, gas prices have never been higher at this late in the year.”

Venezuela's oil exports won't bring any short-term relief to American drivers. After years of mismanagement by the socialist government, the country's oil infrastructure is in a state of disrepair. Venezuela's current daily production is about 1.2 million barrels, far below the peak level of 3.5 million b/d in the late 1990s.

Smart Energy estimated in January of this year that in order for Venezuela's production to return to its peak level, an investment of about 180 billion US dollars will be needed by 2040. Secretary of State Marco Rubio said on Friday that Trump's agreement would bring the country nearly $100 billion in private sector investment.

Commenting on the agreement, Goldwin said: “This will definitely not have any impact on gasoline prices or Venezuelan oil in the next few years.”

Andy Lipo, president of Lipow Oil Associates Consulting, said it is currently unclear which oil companies will invest in extracting their reserves in Venezuela, and it is also unclear how these deals will be structured. Chevron is currently the only major US oil company active in the country through a joint venture with the state-owned Venezuelan Petroleum Company (PDVSA).

Chevron's chief financial officer Emile Bonner said during the company's earnings conference call on July 31 that Chevron's production in Venezuela increased 15% this year, reaching 280,000 barrels per day. According to Bona, the oil giant expects to increase production by up to 50% by 2028. This means that in about two years, Chevron will produce around 400,000 barrels per day in Venezuela.

However, Lipo pointed out that Venezuela's production growth will be constrained by restrictions on export terminals. The analyst said that due to the challenges posed by old infrastructure and power outages affecting the port, tankers waited as long as 30 days to load crude oil cargo from Venezuela.

Goldwin said these terminals “must be expanded to handle more production.” “It's unclear who will take over the project,” he said.

Venezuela's interim president, Delsi Rodriguez, said on Saturday that the 25-year agreement will develop 17 oil fields and initially increase production to 1.5 million barrels per day. According to a list submitted to Reuters, most of these oil reserves are within 8 blocks of the Orinoco Heavy Oil Belt, while the rest is in the Lake Maracaibo region.

Goldwin said the Oilfields in the Orinoco Heavy Oil Belt have little or no infrastructure to use. “At best, those oil fields will take five to seven years to deliver additional production to the market,” he said.

Furthermore, there is great uncertainty about the long-term viability of the agreement. Bob McNally, president of Rapidan Energy Consulting, said the agreement faced significant political risks in Washington and Caracas.

McNally said that if a Democratic president comes to power in 2029, it is likely that the agreement will be re-examined or terminated. He pointed out that even if the Republican Party wins the next presidential election, the future Venezuelan government may tear up the agreement as Caracas did in the past.

McNally said that if all goes well for the next few decades, Venezuelan oil could provide a large and much-needed supply. But he added that as far as fuel prices at gas stations are concerned, “this is by no means a major influencing factor in the short term.”