US Oil Stocks and Venezuela

January 6, 2026

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"Should I buy oil stocks?"

Someone asked: “Should I buy oil stocks?”  

Well, consider this:  “Venezuela has the world’s largest reserve of oil in the ground.  Their oil is a thick, heavy type that is expensive to remove.  So, oil prices need to be around $80 per barrel to extract it profitably.   Brent crude oil is currently trading at $62 per barrel.”

See the problem?  $80 versus $62?  Even if the Venezuela yields to US demands and allows the US majors in there, they cant pull it out of the ground at a profit.  I guess that explains why Exxon stock is down today.

But we’re getting ahead of ourselves.  Let’s back up.  All oil is not created equal.  

The 3 P’s of Oil Reserves

Drilling for oil always involves a bit of guesswork.  Before drilling a hole, companies try to answer two questions:

(1) how much oil is down there?  

(2) can we get it out profitably?  

To answer those, companies use a variety of tools, including seismic graphs, drill samples, and others.  

Based on those analyses, they separate the oil into three groups:  proved, probable, and possible – known as “the 3P’s”.

In the annual report for US oil companies, they will disclose their reserves (ie, oil in the ground) according to the 3 P’s.   And “proved” reserves are the gold standard.  

Now, Venezuela.  Back to the two key questions:  

(1) how much oil is down there?  

(2) can we get it out profitably?  

Well, in the 2009-2010 timeframe, the US Geological Survey (USGS) said that a massive amount of oil is down there – as much as 500 billion (!) barrels of oil were down there.   So the answer to question #1 is: “a lot”.  

However, the harder question is: “can we get it out profitably?”  The table below shows the general “breakeven” rates for oil of various types and regions.

This is why Saudi Arabia can drive production up higher and higher (like they did last year) and not being concerned about falling oil prices.  Becuase they can still pump it out at very profitable rates.  However, the US shale companies are now starting to bump up against the breakeven level.  New projects are being looked at with a more careful eye and a sharper pencil.

And for Venezuela, it’s even worse.   But this begs the question: “why are Venezuela’s reserves considered proven if the breakeven price is above the current market price?”  

Well, in the 2010-2013 timeframe, oil prices were in the $100-120 range.  So all that Vez oil could be extracted profitably.  But as you can see from the chart below, it was never revised lower after oil prices fell.

So to answer the original question:  should you buy oil stocks?  Well, the stocks might go higher on “vibes” alone.   I’m humble enough to realize that you cannot ignore pure animal instincts when considering which way stocks might go.  

But if you want an answer based on fundamentals, there is little to no impact to the large US oil stocks’ fundamentals at the moment.  The infrastructure needs to be rebuilt.  That alone will take years.  And as we just discussed, most of it cant be extracted and sold profitably anyway.  If oil rockets back above $100, then this calculus changes.  But for now, that’s how I see it.