Even a US Blockade of Venezuela Isn’t Spiking Oil Prices

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. The U.S. has intensified its blockade of Venezuela by trying to intercept a third oil tanker off the country's coast. These actions could put pressure on President Nicolas Maduro's government as Maduro faces calls to step down. At least 95 percent of the country's overseas revenue comes from oil sales. Whenever there are winds of conflict involving oil producers, oil markets tend to react strongly. But on Monday, Brent oil prices rose only moderately, from over$60 on Friday to over$62 on Monday. That's in part because these days, Venezuela's exports account for less than 1 % of global oil demand.

1:49There are many other countries flooding the market with oil. Whether you look in the U.S., whether you look at OPEC producers in the Middle East, whether you look at countries you don't necessarily think of as sort of long storied oil producers like Guyana. The general story of oil production over the last couple of years has been that it has grown incredibly quickly. Alex Longley is an oil reporter at Bloomberg based in London. At a time when affordability has become a political watchword and it feels like everything is up in price, Alex says oil is a notable exception. And that's true of gasoline prices at the pump.

2:22That's true of crude prices traded by oil traders, derivative traders across the globe. Three years ago, we were trading above$100 per barrel. That's Javier Blas, a columnist for Bloomberg Opinion, who writes a lot about energy. We are trading now, if we look at the U.S. benchmark, the West Texas Intermediate, around$55 per barrel. So the price of oil has gone down by 50 % over the last two and a half, three years. These days, gasoline at the pump is less than$3 a gallon in the U.S. on average, the first time it's been that low since 2021. And if we look at adjusted by inflation, which is really what matters, the price of oil is not very different to what it was around 2000, 25 years ago.

3:07It pains me almost saying because I make a living writing about energy and oil prices and how important they are to the global economy. But at current prices, central banks don't need to think about oil. Governments don't need to think about oil. To be honest, drivers and families can't really go on their business without having to think about oil because it's cheap.

3:38I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, what's behind this glut of oil, which has led to lower prices, and how conflicts involving Russia and Venezuela could impact them?

3:56When you see oil around$55 or$60 a barrel, you might wonder about demand, whether electric vehicles and clean energy might be driving down prices. But Bloomberg Opinion's Javier Blas says that's not the case. The reality is that demand is actually not bad. It's an all-time high. Considering what is happening in the global economy is growing as much as we will expect, what has been the main driver of the price weakness is the supply. And that is coming from everywhere. It's coming from Texas and New Mexico, in the United States and new shale regions. It's coming from OPEC countries like Saudi Arabia and Iraq.

4:36and is coming from new big players in the market like Guyana and Brazil. After a period of very high prices around 2021, 2022, we are beginning to see the market reacting. And the market is reacting the way it does, bringing a lot more supply. And that's what's really driving the price down. Alex, you've written that supply could exceed consumption by 4 million barrels a day. And I wonder if you could help us think about that quantity. How much oil are we talking about? How would you explain that to somebody who isn't following this day in and day out? Perhaps the simplest way is think of the biggest ships that can carry oil in the world.

5:12They carry 2 million barrels. If supply is exceeding demand by 4 million barrels a day, two giant super tankers of oil, imagine those rocking up off the coast of Texas or off the coast of the UK here, two of those appearing every day for 365 days in the year. Firstly, it's a physical impossibility, but it tells you something about the scale of the numbers. Now, if you talk to oil traders privately, they have smaller numbers than that for the most part. I think 4 million barrels a day for the whole year would be the kind of the high end of what people are expecting. But even the lower end of what people are expecting is in any market a very, very oversupplied market still.

5:44A lot of it is already in the water. It is already in oil tankers and is heading from production areas to consumption areas. It takes only about less than a week for some of the oil from North Africa to reach European refineries. But if the oil is going, say, from Brazil all the way to China, that's going to take 40, 45 days. But what we don't know is what is going to happen when that oil reaches destination. Is it going to be consumed or is it going to go straight into storage? And the most likely situation that we're going to have is that come January, February, that oil is going to go straight into storage.

6:24and it's when we are going to see a price that is going to have to go down because you need to incentivize that storing process. And for that, we need lower prices than today. Alex, I remember during the pandemic, oil prices went up. And when they came back down, the prices at the pump, what I was paying for gas didn't come down as much, or at least it didn't seem that way. What's different about this time? Firstly, it depends on where you are in the world. In the US, the response at the pump is much more reactive. It takes a bit of time, but you'll still see it come down here in the UK, for example, and in many European countries.

6:59A giant amount of what you pay at the pump is, of course, tax rather than the actual price of the barrel itself. I think the other things that we have to keep in mind this time that are different is how far oil could fall in the coming period. And 2020 was a period when we all worked from home for at least a few months and in some countries years. We all stayed at home. No one flew. No one drove. and that was what kind of took the floor out of the oil market. This time is very different. This is an oversupply, but there is a natural floor here. And as Javier has talked about previously, oil prices are already very cheap.

7:30So you can kind of start to ask the question of how far as we fall into the 50s, how much further can we fall? Yes, we might see oil with a forehandle, but you don't hear people talking about, for example, the 20s or even really the 30s. Let's talk a bit about winners and losers. Who's benefiting from these lower oil prices? And Alex, I'll turn to you first, Javier, a moment ago, mention Guyana. Who is winning out here? Who's this good news for? Well, I think there's a few things. And perhaps the best place to start is sort of the buyers of sanctioned oil. You mentioned before that kind of 2022 price shock that we in the West felt very acutely.

8:00But there were countries continuing to buy oil that is now sanctioned where those inflationary pressures were nowhere near as large. So the countries continuing to take oil that is under some form of restriction, whether it's India buying Russian oil, whether it's China buying Venezuelan or Iranian oil. They have long been feeling the benefits of lower prices in this higher level of supply. We've already touched on drivers at the pump. That's another clear area of win. And as time goes by, I think you're likely to see that in things like airfares as well. Add into that as well, struggling emerging nations finally starting to get a benefit of lower prices for their economies.

8:32And on top of that, you have, as you said, the new producers, countries where there is an oil windfall that didn't previously exist. That's a slightly more nuanced case. But if you weren't producing any oil five years ago and suddenly you're producing a million barrels a day, there's a clear benefit to that no matter what, even if prices are falling. Javier, how about losers? Shed a tear here for the multi-billion dollar oil companies? Well, certainly big oil is going to lose some money. Anyone that is pumping oil or live around the regions where oil is pumping, think about West Texas, Southeast New Mexico, Oklahoma, Alaska, South Dakota.

9:06all of them are going to be suffering. OPEC producing countries, Saudi Arabia, they're tightening the belt big time. And then all these new emerging producing countries that they are producing a lot more. So they are still, they have the higher volumes, but they were not expecting to receive the price of oil just going into the 50s. So you are Brazil, Guyana, you know, it's not great news for them. But I think that the biggest loser here, it's going to be the countries in the Middle East, Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, they are producing more oil, but the larger volume doesn't really upset the lower price.

9:44And those countries are in need of a lot of money, particularly Saudi Arabia. So I will say that the biggest loser here is Saudi Arabia. The second loser is going to be Texas. Let's talk a bit more about Saudi Arabia and Texas and sticking with the Middle East for Xavier, it sounds like when prices are this low, it kind of sets off a chain reaction that has a kind of profound effect on investment and production. Can you just describe the way that customarily unfolds when we see prices this low for such a sustained period of time? Well, companies start cutting everything. They're going to start spending less on drilling, less on building pipelines, less on exploring for new oil fields.

10:23And they're going to start firing people at the office. They're going to cut the amount of traveling. They're going to cut the paper clips that the personal assistants are using. You start really shrinking the oil industry. And a lot of that is a one-off. It can be reversed. So you are doing less drilling. You could increase drilling next year. You can reverse that very, very quickly. The problem is when oil companies start to cut into what I would say the bone, firing geologists, firing the people who are going to find the next oil field five, 10 years from now, which is going to bring the supply in the 2030s.

11:00If we see that, then we are going to damage the oil industry for years to come. It's also interesting. I think we've seen the first wave of those cuts have done everything they can, particularly in the majors, to shield their oil and gas businesses. They've moved money away from things like renewable and power, as Javier says, to prevent that cutting down to the bone. But logic dictates that once you've stripped everything else, it's the oil and gas that comes next. Alex, as we move from the Middle East to Texas, to US shale, what are those shale producers saying about their prospects here in the medium to long term?

11:33I would say different things, depending on whether you talk to them publicly or privately. We have sort of comments that there's a lot of lobbying going on to the US administration about how far prices are going to fall and what that could mean in the long term in terms of getting crews back onto fields and how quickly you can do that if and when prices rally down the line after this drop. You have an entire tariff environment, right, that is affecting the price of steel, the fundamental cost of the things that help you drill oil out the ground, right? You need to drill it and then put it in pipes and then export it.

12:03And if the cost of doing all that goes up materially, so does your breakeven cost. And that means your wells struggles to be profitable as prices fall in the same way it would have done a few years ago. Coming up, we go back to Venezuela. How global conflicts could impact oil prices going forward, and what it would mean if prices get even lower.

12:35The story of the current global market for oil is one of both oversupply and unpredictability. From Russia and Iran to the U.S., China and Venezuela, geopolitical conflicts involving the market suppliers have created a climate where major disruptions can arise quickly and without warning. Case in point, the U.S. blockade against Venezuela. That blockade refers to sanctioned oil tankers coming in and out of Venezuela. A U.S. official telling ABC News the Coast Guard tried intercepting a vessel that's part of Venezuela's, quote, illegal sanctions evasion. There are a number of dark fleet vessels that have not been sanctioned by the U.S.

13:11Now, over the weekend, the Trump administration boarded a vessel that was not sanctioned. Javier, I'm curious about countries that are facing international sanctions. There are these hidden oil shipments, and I'm curious if you could explain sort of what they are and sort of how they factor into this broader energy picture. It's quite amazing because when you are talking about hidden oil shipments, you are still talking about an oil supertanker, which is about 350 meters long by 60 meters wide. So it's not the kind of thing that you could hide. And obviously, it shows up on every satellite picture that different governments are taking at all times.

13:48But there are vessels that they have changed hands multiple times that we don't know who the ultimate owner of those oil tankers are. There are vessels that at times are using a flag that doesn't even exist or is not really registered on the country that they pretend to be flying the flag. They don't have insurance. They have a lot of fake paperwork. And those tankers are used to shift oil out of the way from Venezuela, Iran, and Russia into the global markets. And by that, I mean mostly China. China is the big buyer of those barrels. Javier, picking up on geopolitics, we've got the conflict in Ukraine continuing, Russia under sanction as a result of that.

14:33Then off the coast of South America, you've got now a blockade in place. How do these stand to affect the price of oil here in the months to come? Well, I mean, that is the big headline race that oil traders talk about. You could have your best modeling of the global economy, your best modeling of supply and demand, but you cannot really anticipate what President Trump in the U.S., President Putin in Russia, and President Maduro in Venezuela are going to do and how that's going to play out. If we think that the situation between Russia and Ukraine, the war, is going towards a solution, perhaps not immediately, but there is at least a process that is going on, a negotiation.

15:14I think that the market is expecting that probably we are not going to see any more sanctions or any enforcement of sanctions. And therefore, supply from Russia should probably be as it is today, up and down a bit. Venezuela. The production is so small in Venezuela, it's about a million barrels a day, it used to produce three and a half, that even if Venezuela was to go to zero, it will not really change the global market that much. But Venezuela is a massive race long term for more oil. If Maduro goes and there is no damage to the oil fields, those are too big if, but let's assume that Maduro goes and the opposition gets power, most likely international oil companies get invited into the country.

16:00And over time, Venezuela can produce a lot more oil than today. I think that if we see a situation in Venezuela in which Maduro goes, the market is going to sell and it's going to sell hard. Alex, let me have you take a bite of that as well. So if President Trump had this kind of pie-in-the-sky outcome, whereby Venezuela opens up, it's producing more oil, Maybe if there's a deal with Russia, those sanctions are lifted. We have this world that's awash in cheap oil. It's only going to get cheaper. Play that out for us, if you would, sort of what that would look like. Well, I think when I talk to whether it's traders, investors, people involved in companies in the oil market, there are two things that come up with that.

16:40On the Venezuela side, the first question is, well, if Maduro does go, what does the post-Maduro world look like? And no one really has an answer for that at the moment. But I think clearly there is a short-term risk of a small supply squeeze and a long-term risk of a large increase in production if there was a smooth transition there. But again, it's a massive if. On the Russian side, you ask people, well, what would you do if there was a peace deal tomorrow? Would you go back to dealing with Russia? Again, the question is, well, what does the world look like tomorrow after this peace deal? Has everyone lifted sanctions?

17:10Has just the US lifted sanctions? Have the US and the UK lifted sanctions, but not the EU? And within that, you kind of get a sense of the difficulty Western companies would have in going back to sort of dealing with Russia very quickly. We had the Total CEO on TV saying, I've diversified my business towards the US and away from Russia. I need long term stability. It's unlikely I'd go back there anytime soon. We were quite a big investor in Russia, almost$15 billion of investments. We drew some lessons. We have made a big write-off of our assets. So, you know, the world is big. So today we have shifted from Russia to the US.

17:47However, there is a lot of Russian oil on the water. And if all of that oil becomes unsanctioned or unrestricted, what you effectively get is a giant release from emergency oil reserves, which is what happened in 2022, right? Prices got very high and governments across the world said these prices are too high. We'll release our emergency oil stocks, flood oil onto the market so that we can lower prices at the pump again. All this Russian oil at sea, if sanctions are lifted, is effectively a giant version of that. And I think that's the interesting thing to watch in the coming months. It won't be a wholesale, the deal is done, we go back to life before the invasion of Ukraine.

18:20But it will really create the possibility to kind of remove some of the sand in the gears of the Russian oil machine and get that oil flowing to market a lot quicker than it had been previously. Javier, last question to you. President Trump at the White House touting cheap gas prices, saying he wants gas to get even cheaper. I'm curious if this pricing dynamic holds, if oil remains cheap or gets cheaper, how does that play out for the U.S. and for other consumer economies? Well, it's relief for consumers, relief for families. It really is, particularly in America, it's different in Europe and in the European Union and the Eurozone and the U.K.

18:59because of the role of taxation in gasoline. but it will really unblock a path to lower interest rates, which is what I think ultimately Trump is interested. Trump only wants cheap oil because he thinks that that's one prerequisite to get lower interest rates at cheaper price of the money. And I think that he's fixated on that. He has put a lot of emphasis on trying to control the Federal Reserve. And I think he's going to keep pushing until he gets exactly what he wants. And for that, he needs to sustain the prices at current levels or even push it lower.

20:01Thank you.