Oil prices should have crashed after the US brought about a regime change in Venezuela as the re-entry of Venezuelan oil, under sanctions until now, are expected to worsen the glut in global markets.
While the removal of sanctions and the capture of President Nicolas Maduro theoretically unlock the world’s largest oil reserves, oil companies and traders are looking past the headlines at the physical reality of Venezuela's decimated infrastructure.
Mint explains why oil prices have remained range-bound and what it means for India.
How are oil prices faring?
Oil prices are back to where they were before the US action in Venezuela. On 3 January, US forces attacked the Venezuelan capital Caracas and captured President Mudaro. When the markets opened on 5 January, the benchmark Brent Crude saw a marginal spike to $62.56 a barrel. But the gains did not hold. Early on 8 January it was trading at $60.94, around where it was on 1 January after it was announced that Venezuela would turn in up to 50 million barrels of oil to the US.
Theoretically, prices should have crashed, right?
Yes. The entry of Venezuelan oil will destabilise the global market, already drowning in a surplus of almost 4 million barrels per day (bpd). The South American nation sits on 304 billion barrels of oil reserves, the largest in the world, and US President Donald Trump plans to control Venezuela’s oil sector indefinitely. He wants US oil majors to invest heavily to exploit Venezuela's reserves. On Friday he called for a meeting with the top executives of Chevron, Exxon and ConocoPhillips. However, they do not share his enthusiasm, which is why oil prices have stayed flat.
What are the oil companies worried about?
Though Venezuela sits on huge reserves, its oil output is just 9,30,000 bpd – less than 1% of global output. This is because the sector has suffered from decades of under-investment and crumbling infrastructure. Reviving it will require billions of dollars of investment, which makes little sense at the current low oil prices. It will also need investment guarantees, security, and skilled professionals.
So what’s the outlook for oil in 2026?
The International Energy Agency estimates a marginal increase in oil demand at 860,000 bpd in 2026 (from 830,000 bpd in 2025) as Chinese and European economies continue to underperform. The shift to electric vehicles and the strong dollar are also expected to smother demand.
However, supply remains high as oil-producing countries refuse to cut output to match demand. Goldman Sachs therefore expects global oil prices to average $53 a barrel in 2026, while Wood Mackenzie pegs it at the mid-to-high $50s. In 2025, oil prices fell from $75 to $60 a barrel.
What does this mean for India?
High oil prices hurt India in many ways. They typically fuel inflation, worsen the current account deficit, and increase pressure on the rupee. Earlier this week, India’s average crude price fell below $60 a barrel, the lowest in five years. Declining prices have helped the country cut its oil bill significantly. Between April and November 2025, India saved as much as $11 billion despite importing a higher volume. State Bank of India predicts the price of India’s crude oil basket will drop to around $50 in 2026.