US Finalizes Venezuela Oil Deal, Eyes Crude Swap

Energy Secretary Chris Wright flew to Caracas this week to finalize the Trump administration's oil agreement with Venezuela, and said the United States could swap Venezuelan heavy crude for American light crude to help refill the nation's emergency petroleum stockpile.

"We'll swap you a barrel of heavy crude for a barrel of light or medium United States crude," Wright told CNBC from Caracas on Wednesday.

The catch for drivers: Wright said the new Venezuelan flows would take 12 to 24 months to show up as lower gas prices — after November's midterm elections.

What Is In The Deal

Under the agreement, North American Blue Energy Partners received 100-year concessions covering 17 Venezuelan oil fields, Business Insider reported. The U.S. government took a 35% equity stake in the company's corporate parent, and the State Department gained the right to buy 20% of the oil from fields the company operates at the cost of production.

Wright said Washington will not run the wells. The U.S. government "will not be the operator" of the reserves, he told CNBC, describing the arrangement as a deal between the U.S. government and a Venezuelan company to develop the resource without displacing private operators.

He also said the swap concept works around a technical mismatch: some of Venezuela's key heavy grades are not suitable for the Strategic Petroleum Reserve. Venezuelan heavy crude would go to U.S. refiners — many of them built in the 1960s and 1970s around Venezuelan barrels — while lighter American crude obtained in the swap goes into the reserve. "It doesn't mean that exactly these barrels go in there," Wright said.

The Numbers

Venezuela is producing more than 1.2 million barrels a day now, Wright said. He predicted "well over a million and a half barrels a day by the first half of next year" and more than two million barrels a day by the end of the decade — a roughly 50% production increase within 12 to 18 months, a forecast he said he stands by.

"This is downward pressure on oil prices globally," Wright said.