Key Points
- President Trump is pushing U.S. oil companies to boost production in Venezuela.
- However, a flood of Venezuelan oil would further weaken prices and hurt U.S. producers.
- U.S. oil prices are already below the breakeven point for many companies.
- The plan is seen as a “stress test” for the American shale industry.
President Trump is pushing U.S. oil companies to help rebuild Venezuela’s struggling oil industry, but the move could end up hurting those same companies at home. By flooding the market with new Venezuelan oil, the administration’s plan threatens to weaken prices, cut revenues, and put even more pressure on an already reeling U.S. oil sector.
Trump’s goal is to lower gas prices for American consumers, a popular move that would help him politically. But it’s a classic case of trying to have it both ways. Lower prices at the pump mean lower profits for oil companies, and lower profits mean they drill less, not more.
The U.S. oil industry is already in a tough spot. With a global oversupply of oil, prices are already below the $65 a barrel level that many producers need to turn a profit. This has led to mass layoffs and spending cuts across the industry.
Now, the prospect of tens of millions of barrels of Venezuelan crude hitting the U.S. market is a “stress test for the American shale model,” according to one industry CEO.
While access to Venezuela’s massive reserves would have been a golden opportunity in the past, the timing couldn’t be worse. The market is already well supplied, and a new influx of Venezuelan oil could push U.S. prices down to near $50, squeezing the margins of even the most efficient producers.
The administration is even floating the idea of subsidizing U.S. investments in Venezuela to get companies on board. But for the small and mid-sized producers who make up the backbone of the U.S. shale industry, the math just doesn’t add up. They are being asked to help a foreign competitor at a time when they are struggling to survive themselves.
