Consultancy estimates indicate that Venezuela's oil production faces high breakeven costs, ranging from $60 to $80 per barrel, with flagship projects exceeding $80. This presents a significant competitive disadvantage, especially set against a backdrop of low global benchmark crude prices and a projected supply glut. The nation holds the world's largest proven oil reserves, primarily heavy and extra-heavy crude in the Orinoco Belt, but production is challenged by costly extraction and infrastructure needs.

Factors Driving High Costs

Years of insufficient capital investment and poor maintenance have deteriorated infrastructure and inflated running costs. The reliance on imported diluents for extra-heavy oil extraction and the limited function of upgraders, which operate only as blending facilities, have particularly contributed to high breakeven costs in key areas like Junin and Carabobo. Supply chain disruptions, exacerbated by U.S. sanctions, and equipment failures—estimated to account for over 30% of 2025 production losses—further hinder output.

Market Context and Production Forecasts

Venezuela's high costs contrast sharply with extraction costs in regions like Saudi Arabia. Over 60% of its oil exports, primarily the Merey blend, go to China at a fixed discount to Brent. Operational and geopolitical disruptions are causing significant production declines. Estimates suggest production could drop by 200,000 to 300,000 barrels per day in early 2026, with a potential short-term shock of up to 50% following recent political events. This continues a long-term trend of declining production due to political volatility and mismanagement.

Pathways to Improvement

The Orinoco Belt remains the primary source for potential growth, with an additional 500,000 barrels per day of capacity that could be unlocked. Key priorities to reduce breakeven costs to $50-$60 per barrel include securing competitively priced diluents, rehabilitating supply chains, upgrading critical infrastructure, and reactivating shut-in wells. Restoring upgraders, establishing domestic diluent production, and optimizing crude processing through operational improvements and economies of scale are seen as essential steps for future competitiveness and production growth.