Oil oversupply risks and global crude trade realignment loom with Venezuela’s regime change

January 6, 2026, by Melisa Cavcic

As Venezuela faces a regime change, the country’s production recovery is staring at a decade-long timeline despite near-term supply gains, according to Wood Mackenzie, an energy intelligence group, which believes that additional Venezuelan barrels could pressure Brent prices below mid-to high $50 per barrel (bbl) of oil in the first quarter of 2026 amid oversupply and also realign flows, diverting Middle East heavy barrels to Asia and intensifying competition for Canadian crude in the U.S. Gulf Coast.

Wood Mackenzie’s analysis indicates that the removal of Nicolás Maduro from Venezuela’s presidency and his transfer to U.S. custody creates near-term downside risk for oil prices while presenting longer-term uncertainties for upstream investment. As a result, it is expected that any easing of U.S. sanctions could add barrels to an already oversupplied market in early 2026, while structural challenges cast doubt on rapid production recovery beyond initial gains.

While Venezuela produced 820,000 barrels per day (b/d) in November 2025, output is expected to decline following the U.S. naval blockade imposed on December 17, 2025, based on the firm’s analysis. With this in mind, Wood Mackenzie anticipates that production could fall by 200,000 to 300,000 b/d in early 2026, as market participants withdraw and high inventories force curtailment.

Alan Gelder, SVP Refining, Chemicals & Oil Markets at Wood Mackenzie, commented: “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.”

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

The firm notes that players that exited, such as BP, ConocoPhillips, Equinor, ExxonMobil, Petrobras, and TotalEnergies, hold pre-nationalisation experience, as geographical proximity to Gulf Coast refineries provides additional appeal for U.S. producers and integrated players.

The energy intelligence group is convinced that upstream investment commitments require improved security conditions and a stabilised political and legislative environment, encapsulating contract sanctity and competitive fiscal terms, with new projects also needing to meet companies’ economic and emissions screening criteria.

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Wood Mackenzie’s findings show that oversupply is anticipated for 2026, particularly in the first quarter, even though the oil market’s reaction to the December blockade had been muted. However, the U.S. sanctions changes that reward compliance with the Trump administration by enabling Venezuelan crude sales to American refiners could provide rapid dollar inflows to support the country’s finances and production.

Therefore, the firm elaborates that additional barrels will pressure an already oversupplied market, potentially driving Brent below the mid-to high-$50/bbl levels projected for the first quarter. Under favourable conditions, the company’s analysis points out that 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 to 300,000 b/d 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,” added WoodMac.

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Furthermore, multi-billion-dollar capital deployment in an environment already challenged by a decade of sanctions is perceived to be required to return production to the 2 million barrels per day last achieved in 2016. The investment case is deemed to be complicated by breakeven costs above $80 per barrel 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,” continued Wood Mackenzie.

The company’s findings pinpoint Libya as a precedent, which suggests extended recovery timeline, as historical comparisons offer limited optimism for rapid restoration since Libyan oil production took nearly a decade to recover following the death of Muammar Gaddafi. The country’s current output remains below 2010 levels. The company’s analysis highlights that increased Venezuelan crude exports will redirect global trade patterns.

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Before sanctions came into play, Venezuela was seen as a major refined product exporter, with the Paraguana complex among the world’s largest refining centres, but crude processing has collapsed 75% since 2010, from just under 1 million b/d to around 250,000 b/d in 2025. Gasoline exports to the United States exceeded 100,000 b/d 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,” underscored WoodMac.

While emphasizing that a wider light-heavy crude pricing differential benefits high-complexity refiners in the United States, India and China, the firm outlines that U.S. refiners invested heavily in infrastructure to process heavy oil from Venezuela and Mexico, providing a ready demand for any production growth.