Why Oil Prices Are Falling Again: Venezuela’s Return Sparks Supply Fears

Oil prices edged lower on Tuesday as markets reacted to the growing possibility of higher crude output from Venezuela, a development that has sharpened concerns about excess global supply at a time when demand remains fragile.

The immediate trigger was the capture of Venezuelan President Nicolas Maduro by US authorities, an event that traders believe could pave the way for a partial easing of US sanctions and a revival of oil production in the sanctions-hit nation. The prospect of additional barrels entering an already well-supplied market has weighed on prices, even as geopolitical uncertainty continues to simmer.

Oil slips as supply concerns resurface

Brent crude futures fell 0.2 per cent to $61.62 a barrel in early Asian trading, while US West Texas Intermediate (WTI) crude was down 0.3 per cent at $58.15 a barrel, according to Reuters data. 

The modest decline followed a more than 1 per cent gain in the previous session, when prices rose as investors initially digested the dramatic developments in Venezuela and comments from US officials about exerting control over the country.

Market sentiment, however, quickly shifted back to fundamentals. Traders reassessed the implications of a potential increase in Venezuelan output, adding to a broader narrative of oversupply that has dominated oil markets in recent months.

Venezuela back in focus after Maduro’s capture

Venezuela, a founding member of the Organization of the Petroleum Exporting Countries (OPEC), holds the world’s largest proven oil reserves at around 303 billion barrels. Despite this, its oil industry has suffered a prolonged decline due to years of under-investment, mismanagement and sweeping US sanctions.

Last year, Venezuela’s average oil output stood at about 1.1 million barrels per day, a fraction of its historical capacity. That figure could change materially if political conditions stabilise and sanctions are eased.

“I think if the Trump playbook even partially comes to pass, Venezuelan crude oil production should increase,” said Ed Meir, analyst at Marex. “Should it increase, there will be more pressure on an already oversupplied market.”

Maduro pleaded not guilty on Monday to narcotics charges, a development that has added another layer of uncertainty to the political and economic outlook for the country.

US moves add to expectations of higher output

Adding to the bearish tone, the administration of US President Donald Trump is expected to meet US oil executives this week to discuss ways to boost Venezuelan oil production, the news agency reported.

 Such discussions have reinforced market expectations that Washington may actively encourage investment and output growth in Venezuela.

Oil analysts say that, under the right conditions, Venezuelan crude production could rise by as much as 500,000 barrels per day over the next two years. Any increase of that scale would be significant in a market that is already struggling to absorb existing supply.

Weak demand and 2026 outlook weigh on prices

The pressure on oil prices is not limited to Venezuela. A Reuters poll conducted in December showed that market participants already expected crude prices to remain under strain in 2026 due to a combination of rising supply and subdued demand.

Economic uncertainty, slower global growth and energy transition trends have all dampened consumption growth, particularly in major economies. Against this backdrop, even incremental supply additions can have an outsized impact on prices.

“Longer term, the US administration’s stated desire to drive up Venezuelan oil supply is likely to provide a net bearish impulse to the market,” Citi said in a client note, highlighting the structural downside risks facing crude.

OPEC+ response remains a key variable

Despite the renewed focus on oversupply, OPEC and its allies, collectively known as OPEC+, have so far opted for caution. At a short meeting on Sunday, the group agreed to maintain current output levels, signalling a wait-and-watch approach.

Analysts believe that OPEC+, led by Saudi Arabia, retains the flexibility to intervene if inventories rise sharply. Citi noted that the producer group would likely respond to any significant build-up in stocks by cutting output to defend Brent prices in the $55–60 per barrel range over the medium term, should supply surprise on the upside.