What the Venezuela regime change means for oil production, crude and product markets

The consultancy expects any easing of US sanctions could add barrels to an already oversupplied market in early 2026, while structural challenges cast doubt on rapid production recovery beyond initial gains.

Venezuela produced 820 000 bpd in November 2025, but output is expected to decline following the US naval blockade imposed on 17 December. Wood Mackenzie anticipated production could fall by 200 000 - 300 000 bpd in early 2026 as market participants withdraw and high inventories force curtailment.

Commenting on the implications, Alan Gelder, SVP Refining, Chemicals & Oil Markets at Wood Mackenzie said: "Venezuela offers the scale major producers need, but the fundamentals work against rapid deployment. Heavy crude economics at current prices, unresolved legal claims, and political uncertainty create a risk profile that extends well beyond typical above-ground challenges. Companies will watch, but commitments require more than sanctions relief."

Market oversupply threatens Q1 price floor

With oversupply anticipated for 2026, particularly in the first quarter, the oil market's reaction to the December blockade had been muted. US sanctions changes that reward compliance with the Trump administration by enabling Venezuelan crude sales to US refiners could provide rapid dollar inflows to support the country's finances and production. Additional barrels will pressure an already oversupplied market, potentially driving Brent below the mid-to high-US$50/bbl levels projected for the first quarter.

Near-term recovery possible within months

Under favourable conditions, operators including PDVSA, Venezuela's national oil company, could raise production relatively quickly. Existing dormant wells require basic workovers that could be funded from export cash flows, enabling an additional 200 000 - 300 000 bpd increase in coming months.

Several obstacles remain, including degraded service sector capabilities, security concerns, potential infrastructure repairs, and access to diluent for heavy crude production.

Investment path requires substantial capital and fiscal overhaul

Returning production to the 2 million barrels per day last achieved in 2016 requires multi-billion-dollar capital deployment in an environment already challenged by a decade of sanctions. The investment case is complicated by breakeven costs above US$80/bbl Brent for key Orinoco belt projects, alongside an uncertain political and legislative framework.

Fiscal terms and project plans for heavy oil developments in the Junin and Carabobo areas require overhauls to attract international oil company investment. The corporate landscape is further complicated by outstanding arbitration awards to US companies related to asset nationalisations nearly two decades ago.

Libya precedent suggests extended recovery timeline

Historical comparisons offer limited optimism for rapid restoration. Libyan oil production took nearly a decade to recover following the death of Muammar Gaddafi. Current Libyan output remains below 2010 levels.

Refining sector poses risk to Atlantic Basin margins

Prior to sanctions, Venezuela was a major refined product exporter, with the Paraguana complex among the world's largest refining centres. Crude processing has collapsed 75% since 2010, from just under 1 million bpd to around 250 000 bpd in 2025. Gasoline exports to the US exceeded 100 000 bpd before sanctions.

A return to historical refinery throughput and product export levels poses risk to Atlantic Basin refiners, particularly in Europe, given the competitive positioning Venezuelan refineries once held. However, refining investments typically follow upstream development, making near-term recovery unlikely.

Global crude trade flows face realignment

Increased Venezuelan crude exports will redirect global trade patterns, diverting Middle East heavy barrels to Asia and intensifying competition for Canadian crude on the US Gulf Coast.

A wider light-heavy crude pricing differential benefits high-complexity refiners in the US, India and China. US refiners invested heavily in infrastructure to process heavy oil from Venezuela and Mexico, providing ready demand for any production growth.

Major oil companies assess risk-reward balance

Venezuela's oil resources offer scale that major operators and national oil companies seek for portfolio strengthening over the next decade. Current upstream partnerships in Orinoco belt projects include Chinese, Russian, Indian and European companies, with Chevron the top producer outside PDVSA, followed by Repsol, CNPC and Eni.

Companies that exited, including BP, ConocoPhillips, Equinor, ExxonMobil, Petrobras and TotalEnergies, hold pre-nationalisation experience. Geographical proximity to Gulf Coast refineries provides additional appeal for US producers and integrated players.

However, commitments require improved security conditions and a stabilised political and legislative environment, including contract sanctity and competitive fiscal terms. New projects must also meet companies' economic and emissions screening criteria.

Read the article online at: https://www.worldpipelines.com/business-news/07012026/what-the-venezuela-regime-change-means-for-oil-production-crude-and-product-markets/