President Donald Trump’s push to rebuild Venezuela’s oil industry could come at the expense of nearby producers.
US shale oil is “on the edge of a cliff,” warns BofA Global Research’s commodities team, and one of the factors that could push it over that cliff is a pro-market government in Venezuela.
“With prices falling and OPEC+ adding more volumes to the market, US shale oil supply growth is stalling. With US shale on the edge of a cliff, it all depends on where prices head from here,” the strategists said in a note.
They are likely to go lower.
Goldman Sachs now forecasts that West Texas Intermediate prices will average $52 a barrel in 2026, and that prices will bottom out at $50 in the fourth quarter as inventories rise.
BofA strategists, writing before the US attack on Venezuela and the capture of leader Nicolás Maduro, estimated that if oil averaged $57 this year, US shale oil production could be reduced by 70,000 barrels or 1 percent.
“However, several downside risks could cause US crude oil prices and shale production to decline substantially,” they said. These include peace in Ukraine, a pro-market government in Venezuela and a worsening economic outlook.
Shale oil production, which uses a technique called “fracking,” is more expensive than most other forms of extraction and drillers need a WTI above $60 to make a profit. Producers have coped with lower prices by reducing drilling, although over the past decade of all shale oil regions in the US only the Permian Basin in Texas has shown production growth, BofA said.
Global oil prices have already been falling since mid-2024 as supplies increased. Total weekly oil inventories, including stockpiles in China and offshore oil, are now poised to surpass levels not seen since the glut during the pandemic, strategists said.
Even a marginal increase in Venezuelan oil production in the coming months could increase that surplus and potentially drive down prices.
“A sustained drop below $50 a barrel – the breakeven point for many companies – could cripple the US shale industry, which has strongly supported Trump,” the Wall Street Journal said.
There is no doubt that Venezuela is a vast oil resource. It has the largest proven crude oil reserves in the world, 17 percent of the world’s total, but the industry has suffered years of instability and neglect. From a production peak in the late 1990s of 3 million barrels per day, production has fallen to just over 1 million.
While rebuilding will take a lot of money and time, the WSJ reports that some OPEC members believe that if the country’s administration makes the oil industry more attractive to investors, it could increase production by 2 million barrels per day within one to three years.
American producers are not happy about this.
Trump’s push to bring Venezuelan oil to market has strained relations with Texas oil executives, many of whom supported his re-election, the Financial Times reports.
On Friday, Trump met with U.S. oil majors with pockets deep enough to invest in Venezuela, but executives from large independent drillers were not invited.
“To me, the signal from the administration is: we would rather spend our American money propping up a Venezuelan oil business than supporting our current independent businesses,” Kirk Edwards, chief executive of Latigo Petroleum, a private producer based in Odessa, Texas, told the Financial Times. Edwards donated to the president’s re-election campaign.
The market is also betting that a rise in Venezuelan oil would hurt these producers, the Financial Times said. Shares of U.S. independent oil companies Diamondback Energy Inc., APA Corp. and Devon Energy Corp. lost as much as 9 percent last week.
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Canada’s labor market came back to earth in December, economists say. The economy gained 8,200 jobs, far less than the average of 60,000 jobs per month from September to November. Not only that, the unemployment rate jumped from 6.5 percent to 6.8 percent, as the number of people looking for work exceeded available jobs.
Friday’s data also cooled expectations of a Bank of Canada rate hike this year. Markets had been betting on a 70 percent chance the central bank would raise its benchmark rate by the final meeting in 2026, but that fell to around 60 percent after the data came out.
- Prime Minister Mark Carney will meet with Chinese President Xi Jinping when he travels to China this week, the first visit to China by a Canadian prime minister since 2017. Carney will also stop in Doha, Qatar, on Jan. 18 before heading to Davos, Switzerland, to attend the World Economic Forum meeting on Jan. 19.
- December jobs report likely ends chances of Bank of Canada raising rates this year, economists say
- Why HELOCs will make a lot of sense in 2026
- Jennifer’s CPP, OAS, and pension may not be sufficient income. Will RRSP, TFSA, and Other Assets Allow You to Retire?
Gen Z Canadians are reshaping the spending priorities of older generations, but that doesn’t mean they’re settling for less or making poor financial decisions. Learn more about their goals and strategies here.
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McLister on mortgages
Do you want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help you navigate the complex industry, from the latest trends to financing opportunities you won’t want to miss. Also, check out their mortgage rates page for Canada’s lowest national mortgage rates, updated daily.
Financial Post on YouTube
Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts on business, economics, housing, the energy sector and more.
Today’s Posthaste was written by Pamela Heaven with additional reporting from staff at the Financial Post, The Canadian Press and Bloomberg.
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