Oil Market Impacts from Venezuela

0:05Investors are carefully watching the situation in Venezuela with potential implications for the oil and other commodity markets on the top of investors' minds. So my guest today is Dan Struyven, co-head of global commodities research in Goldman Sachs Research. He joins us by phone from Miami, where the Goldman Sachs Energy, Clean Tech and Utilities Conference is just getting underway.

0:28Dan, thanks so much for making the time. Thanks a lot, Allison, for having me. So, Dan, first, just catch our listeners up on the recent developments in Venezuela. What's happened? And give us a sense of the importance of these developments for the oil market. Venezuela's president Maduro was captured by the U.S. over the weekend in Caracas on charges of drug trafficking, along with his wife. And his VP, Delce Rodriguez, is now the interim leader. 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.

1:09But so far, no disruptions. The big question are on the political side, will we see elections? And then, of course, what will happen to the oil industry in coming months and years ahead? So just to reiterate, there have been no disruptions to oil supplies at this point. So with that backdrop, how have oil markets responded so far? And what do you make of this initial market reaction? 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.

1:43The impacts on supply in the short term are ambiguous because on the one hand you could argue that the risks of disruptions have gone up with the possibility that the blockade of Venezuelan oil may intensify, may lead to a lack of storage capacity and therefore production shut-ins. On the other hand you may also argue that But it's more likely now that production will rise in coming months, especially if U.S. firms were to reinvest and reengage in the region potentially ahead of the midterm. So the risks of higher supply and the risks of lower supply have both gone up. The net impact is ambiguous.

2:20And I think that's the key reason why oil markets are up only slightly on the day. And when we talk about over the shorter term and this uncertainty about where supply goes, we're talking about pretty small quantities in terms of the potential swing in oil supply, again, over the shorter term. Yeah, that's exactly right. We think that Venezuela is producing around 800 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 to Venezuelan production is also 300 to 400 KBD.

2:58Running that through our models, that implies a symmetrical risk to oil prices from Venezuelan production in the next year of around plus or minus$2 per barrel, so relatively limited. That said, over the long term, the effects could be much more significant because Venezuela is the country in the world with the largest number of oil reserves. Well, let's talk about that a little bit more because President Trump did say that the U.S. will be, quote, very strongly involved, end quote, in the future of the Venezuelan oil industry and will, again, quote, get the oil flowing the way it should be, end quote.

3:31It seems that investors are putting some stock in these comments, judging by the rise in U.S. oil majors' share prices. But how seriously should investors actually take these comments? What could be the implications on supply growth? Yes, I do think that investors are right in taking these developments and these comments seriously, although I would also make some caveats. 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.

4:11We have seen that over the last 10 years, about 100 % of global oil supply growth has come from very light oil from U.S. shale producers. And so there's really a scarcity of this heavy, special Venezuelan oil. Moreover, U.S. refiners, which were built typically many decades ago when Venezuela was producing a lot, are perfectly set up to treat and process this very heavy oil and make high margins. So, Daman, you say heavy versus light oil. What exactly do you mean by that? It basically means that the oil is thick, dense, it doesn't flow easily, you need to process it before you can ship it, and so it requires extra processing in the so-called upgraders.

4:52So it's more work, but it's also more valuable because the products you make from heavy oil such as diesel are priced at a higher price than some of the lighter products such as gasoline that's more present in light crude oil that you, for instance, find in the U.S. shale complex. The second reason I think that we should not underestimate the potential here is that the US government has shown, for instance, by supporting rare earth companies, that when the US government considers that national security is at stake, that the incentives and the support could make a meaningful difference to production and to the profitability of those companies.

5:26But this is also the caveat. We think that given the degraded infrastructure of the oil sector, that it will take time, a lot of investment and a very robust framework for investing to bring production back to a higher level. It will all depend, I think, on the conditions and the guarantees for oil investment by U.S. companies. And in that context, I think it's interesting to note that Bloomberg reported just an hour ago that U.S. Energy Secretary Chris Wright is set to meet with executives of several major U.S. oil producers at our Miami Goldman Sachs Energy Conference, where I'm right now. So two quick follow-ups to that, Don.

6:05So the first one is, if you see this investment, about how much supply really could be unlocked. And you talked about it won't happen quickly, but over what horizon are we really talking about? Yes, production right now is just under a million barrels per day. We think it could rise by 50 % to one and a half million barrels per day by 2030, so over the next four to five years. And perhaps in an upside bullish scenario to two million barrels per day. We think it could potentially double if you see very significant investment from various U.S. oil producers. In this bullish case from a supply perspective, where supply from Venezuela rises to about 2 million barrels per day, we estimate that oil prices should be about$4 per barrel lower by 2030 because of the extra supply from Venezuela in this upside supply scenario.

6:53But let me grab on to one more point that you made, Don, which is that these companies are going to need some guarantees because your forecast is already for a relatively oversupplied or well-supplied market, at least, for the next few years. So there has to be some incentives for companies to make these investments because otherwise they're going to be uneconomic. Is that right? That's right. So I think that the Venezuelan oil is quite attractive from an underground perspective, from a geological perspective. The challenges are above the ground. What will be the tax rate in the future? What will be the state of the infrastructure?

7:29What's the risk of a third potential wave of nationalization? And so if we get the above-the-ground incentives in place, I think it will be quite plausible to argue that production will rise because the underground geological setup is just quite attractive. But I think it will require strong incentives and a significant change in policy. If more Venezuelan supply does come online, what could that ultimately mean for other oil producing countries, including the U.S.? So I think that the effects for U.S. energy firms would be mixed. The key winners would potentially be U.S. majors with a footprint in Venezuela, either today or historically.

8:08It could also be positive for the U.S. Gulf Coast refiners, which have been set up perfectly to treat the heavy oil from Venezuela. But it could also be negative for shale producers that don't have this footprint in Venezuela, both because of a potentially lower price and perhaps also because of lower volumes if marginal supply growth in five to 10 years would come from Venezuela as opposed to from U.S. shale. I think the effects elsewhere in the world are mostly negative, for instance, for non-U.S. producers that the European majors are down on the day. And we're also seeing some interestingly negative effects for consumers of fuel oil and other related refined products in China.

8:49And I think that's precisely the goal here. President Trump has argued that oil has to flow the right way, which I think means to the U.S. and to the West rather than to the East. Let's move on beyond oil for a moment, because there is some potential impact in other commodities. We often think of gold as something that investors turn to when geopolitical tensions escalate. So what are we seeing in the gold price today? And do you expect that price action to continue? So 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, geopolitical power, but also for physical power, energy power, in the context of the AI race, I would note that the US and China are the two major importers of Venezuelan crude.

9:42And it's in this fractured 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. And I think this development underscores the theme from our commodity outlook in 2006, which is ride the China-U.S. power race and go long gold because it's very well positioned for additional demand, especially from central banks. And so I think our conviction at the margin in our bullish gold call is even slightly higher today than it was on Friday.

10:20John, thanks so much for joining us and good luck with the conference this week. Thanks a lot, Elsa. And thank you for listening to this episode of Goldman Sachs Exchanges. Today is Monday, January 5, 2026. I'm Alison Nathan.

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