Trump's "drill baby, drill" agenda in Venezuela hurts producers at the home

Trump wants $50 oil but it's below the profit level of U.S. producers

Venezuelan oil redirected to squeeze U.S. margins on shale

Venezuelan oil to benefit U.S. refineries

By Georgina Mcartney and Arathy Sommesekhar

HOUSTON, January 9 - U.S. Oil Producers already struggling with low oil prices face renewed pressure as President Donald Trump presses them to increase output in Venezuela – a move which would weaken oil markets, reduce revenues and hurt the industry at home.

Trump's policies, he claims, will unleash American energy while lowering prices at the pumps. This promise would benefit U.S. customers but would squeeze revenues from the oil industry. Lower profits means oil companies will drill less and not more.

Trump has asked U.S. companies to help fix Venezuela's oil production and industry. Access to Venezuela's onshore reserves, estimated to be among the largest in the world, was once a lifetime opportunity.

Despite the fact that oil markets are well-supplied, OPEC has spare capacity and there are plenty of opportunities to pump oil cheaper elsewhere, U.S. oil producers face the prospect of a short-term hit in profits if Venezuelan oil continues to flow to the United States.

The oil prices in the U.S. are below $65 per barrel, which is the level that many companies need to make a profit. This has led to mass layoffs and idled oilfield machinery, as well as spending cuts.

U.S. Oil Futures settled on Friday at $59,12.

U.S. Oil executives from companies like Chevron, Exxon, and lesser-known ones from Energy Secretary Chris Wright’s home state, Colorado, are set to meet at the White House this Friday to discuss possible investment plans in Venezuela.

Treasury Secretary Scott Bessent said this week that smaller, independent companies expressed interest in developing South America's vast resources. The U.S. Government has floated an idea to subsidise investments into the industry.

Trump's decision to import Venezuelan barrels into the already over-supplied U.S. market is a stark reality for U.S. producers. The top oil producers Chevron and Exxon Mobil, ConocoPhillips and the largest oil service providers SLB, Halliburton and SLB, will collectively eliminate thousands of jobs by 2025.

This recent move to redirect Venezuelan crude into the U.S. could result in tens or even hundreds of millions of barrels, which will put pressure on the domestic shale producers, said Linhua Guan. She is the CEO of Surge Energy America. Surge Energy America is one of the biggest private U.S. oil producers with operations located in the Permian basin.

Guan said that the smaller U.S. operators in the shale sector face a tighter margin and increased vulnerability on a market already oversupplied.

Trump announced this week that Venezuela would sell between 30 and 50 million barrels sanctioned oil in the United States. This follows the capture of Venezuelan president Nicolas Maduro by the United States on the weekend, who was then transferred to detention at the United States.

"The surge of Venezuelan barrels represents more than just a shift in supply; it's a stress-test for the American shale oil model," Jasen Gast said, CEO of Houston based Oilfield Service Professionals. The company operates both domestically and internationally.

According to the Energy Information Administration (EIA), U.S. production reached a record 13,61 million bpd by 2025, but is expected to drop to 13,53 million bpd by 2026. Meanwhile, the average retail gasoline price in the United States fell for the third consecutive year, to $3.10 per gallon, last year.

Producers are facing a difficult price environment due to an oversupply, as output growth is slowing and some expect declines. Additional heavy Venezuelan crude barrels that are suitable for many U.S. refining plants could flood the market, further putting pressure on prices.

Gast stated that "as these heavy-grade crude barrels flood Gulf Coast refining facilities, they create an artificial price ceiling which threatens to keep WTI at or near $50, and squeeze the margins of the most efficient Permian operators."

Wright stated on Wednesday, at a conference held in Miami, that he would like to sell Venezuelan crude oil to U.S. refining plants. The refineries could gain from an influx of Venezuelan barrels.

What may benefit refiners will hurt companies that operate in America's vast fields of oil. Ann Janssen, Chief Financial Officer of EOG Resources said that the oversupply from Venezuela and its potential for higher production was driving oil prices lower. This trend is expected to continue for many more quarters.

Dan Pickering is chief investment officer of Pickering Energy Partners. He said that prices are dropping to the point where either OPEC will cut production or U.S. shale producers will reduce their budgets, and U.S. output will roll over.

US SHALE PRODUCTION in the Balance

According to a Federal Reserve Bank of Dallas poll of executives in Texas, New Mexico, and other important production areas, activity in the oil and natural gas sector declined last year. The best drilling sites in the U.S. are drying up, and the breakeven price is rising.

Matthew Bernstein is Vice President of North America oil and gas, Rystad Energy.

Rystad expects the onshore U.S. production, excluding Alaska to decline by approximately 150,000 bpd in 2026, when prices are $50.

Some analysts and participants in the industry have warned that technological improvements could be reaching their limits.

The OPEC+ producer 'group chose to pause the production target increase for the first quarter 2026 due to ample global supplies. OPEC may, however, increase production again in order to gain market share from U.S. shale oil producers.

Michael Alfaro of Gallo Partners, an investment firm that focuses on regulatory and policy issues, said the rerouting of Venezuelan barrels to the U.S. is part of a larger effort to fight inflation by pressing oil prices. Although Trump supports U.S. shale on principle, lower oil and steel tariffs are two persistent obstacles for this group.

Mike Oestmann is the CEO of Tall City Exploration, a shale producer in the Permian basin. "I am in a waiting-and-seeing mode," he said. Reporting by Georgina Mccartney and Arathy Sommesekhar, Houston; Editing and production by Liz Hampton and Simon Webb

(source: Reuters)