Trump’s oil grab is a big problem for the Opec cartel

Trump, who has long championed increased oil production and a target price of $50 a barrel, is planning a sweeping initiative to rehabilitate Venezuela’s oil fields and market its output, people familiar with the matter said. That would reshape the global oil map—putting the U.S. in charge of the output of one of the founding members of the Organization of the Petroleum Exporting Countries and, along with America’s own prodigious production, give it a potentially disruptive role in a market already struggling with oversupply.

While analysts expect that reviving Venezuela’s dilapidated oil industry will take huge investments and a lot of time, they say even a small near-term output increase—followed by a larger rise over the longer run—could exacerbate the global imbalance and push prices further down.

OPEC members now face the difficult question of whether to try to prop up prices by cutting supply at the risk of hurting their revenue and market share—and potentially their relationships with the unpredictable U.S. president.

“The onus is on everyone to manage their own interests but at the same time not poke the bear," said David Oxley, chief climate and commodities economist at Capital Economics. “That’s an inherent tension weighing on the global market."

Some members believe if the Venezuelan administration changes regulations to make the oil industry attractive to American investors, the country could pump an extra 2 million barrels a day within one to three years, up from less than 1 million barrels a day now, Gulf OPEC delegates said.

Saudi Arabia for now is waiting it out, people familiar with the matter said. Its reasoning is it will take years to restore production in Venezuela, where American companies will want a legal framework and potential U.S. government guarantees that would bind future administrations before investing the necessary billions of dollars needed to repair Venezuela’s run-down infrastructure, the people said.

While Venezuela has vast oil reserves, its crude is a heavy, high-sulfur variety that is considered low quality and commercially unattractive.

Other Gulf members of OPEC believe Trump’s plans could have a silver lining. If he disrupts the flow of Venezuelan crude to China, it would force that giant consumer to turn to the Gulf for more supplies, Gulf delegates said.

Even so, the U.S. play for Venezuela will complicate the group’s effort to manage the market as vast reserves fall under U.S. control and out of OPEC’s orbit, the delegates said.

According to analysts at JPMorgan, the combined oil reserves of Guyana, where large U.S. companies dominate the industry, Venezuela and American producers could give the U.S. sway over about 30% of the global total.

“This shift could give the U.S. greater influence over oil markets, potentially keeping oil prices within historically lower ranges, enhance energy security, and reshape the balance of power in international energy markets," the bank said in a recent report.

OPEC, along with allies including Russia, is already struggling to come up with a strategy to manage Trump’s push for low oil prices. While the president has repeatedly called on the cartel to increase oil production, its members worry prices are already too low. At a meeting Sunday, OPEC along with Russia and other producers agreed to hit pause on any oil output increases for the first three months of this year.

Crude slumped last year due to increased output around the world and fears about the state of the global economy. A barrel of Brent, the global oil yardstick, is currently changing hands for around $63. Benchmark U.S. crude is hovering around $59 a barrel, both down around a fifth from a year ago.

Analysts have been reducing their oil price forecasts for this year in recent weeks, with JPMorgan predicting that Brent will average $58 this year while the U.S. benchmark will average $54. The bank expects even lower prices next year. Saudi Arabia this week lowered the price of its crude for Asian buyers for the third consecutive month.

Whatever happens with Venezuela’s output, analysts agree that low oil prices will persist, straining the bottom lines and budgets of global producers.

A sustained drop below $50 a barrel—the profitability threshold for many companies—could cripple the U.S. shale industry, which has strongly supported Trump. Many U.S. drillers already are ignoring the president’s exhortations to boost output, choosing instead to adhere to Wall Street’s demands for strict capital discipline.

Saudi Arabia can pump crude oil at a cost of less than $10 a barrel, analysts estimate. But according to Capital Economics, the kingdom needs prices above $100 to bring its fiscal deficit down to zero.

Riyadh is facing a vast set of domestic spending commitments that have left the world’s biggest oil exporter with a growing budget deficit and increased need to borrow money. The kingdom’s Vision 2030 plan is meant to diversify its economy away from oil by sparking growth in sectors such as tourism, entertainment and sports.

“The low prices definitely exert more pressure on Saudi Arabia and also restrict its ability to strategically deploy overseas capital, which is important as Gulf countries vie for access to the Trump administration by making large investment pledges," said Steffen Hertog, a professor at the London School of Economics who has written extensively about Saudi politics.

More Venezuelan barrels would add to the pressure on Russia’s oil industry, which is being battered by sanctions, Ukrainian attacks and a longer-term structural decline driven by aging fields and insufficient resources to explore complex reserves.

OPEC’s influence is already being eroded by surging production in the U.S., Brazil and Guyana.

“They have seen their pockets being picked by other producers around the world," Oxley said. “There is a lot of oil coming through, and OPEC just hasn’t got as much clout as they once did."

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Summer Said at summer.said@wsj.com