While beneficial for U.S. refiners, a resurgence in Venezuelan production could harm U.S. shale producers. They would face not only lower overall oil prices but also a potential shift in marginal supply growth away from shale towards Venezuela over the next decade, diminishing their market position.

Despite healthy global oil demand, J.P. Morgan maintains a bearish outlook because supply is forecast to expand at three times the rate of demand. This oversupply creates such a large market imbalance that prices must fall to enforce production cuts and rebalance the market.

Chevron's decision to remain in Venezuela, unlike other oil majors, isn't just about future potential. It's heavily influenced by massive, decades-long sunk costs, including U.S. Gulf Coast refineries specifically optimized to process Venezuela's unique heavy sour crude.

The oil market's lack of reaction to the events in Venezuela demonstrates a key principle: short-to-medium term prices are driven by current production and delivery capacity, not the theoretical size of underground reserves that may take years and billions to develop.

Despite major political upheaval in Venezuela, the oil market's reaction is minimal. This is because the short-term supply impact is ambiguous, with an equal probability of production increasing through U.S. re-engagement or decreasing due to intensified blockades, creating a balanced risk profile.

Contrary to assumptions, oil majors are cautious about re-entering Venezuela. They worry about a lack of legal certainty and the risk that any deals could be undone and heavily scrutinized by a future U.S. administration, making the investment too risky.

A potential restart of Venezuelan oil is significant because it is a heavy, diesel-rich crude that has become scarce as U.S. shale dominates supply with light oil. U.S. Gulf Coast refiners, built decades ago, are specifically configured to process this heavy crude, creating a unique high-margin opportunity.

Despite holding the world's largest oil reserves (17%), Venezuela's contribution to global production is minimal (<1%). This critical gap between reserves and output explains why major geopolitical events in the country have little immediate impact on global oil supply or prices.

The hosts argue that even with vast oil reserves and government encouragement, the political instability, power vacuum, and lack of rule of law in Venezuela make it a poor investment for oil companies. The cost and uncertainty of securing profits are too high.