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The price of oil (as measured by Brent crude) fell nearly 2% overnight as traders digested the U.S. invasion of Venezuela and the capture of its dictator, Nicolás Maduro. Perhaps counterintuitively, they concluded that it would not have much effect on the price of oil, at least in the short term.
Shares of U.S. oil companies rose sharply in overnight trading. Chevron was up 7.82% premarket, Halliburton was up 8.45%, ConocoPhillips increased by 7.54%, and ExxonMobil rose 3.95%.
That, again, was somewhat surprising, given that Venezuela’s potential for additional supply — assuming President Donald Trump gets the cooperation he wants from Maduro’s successor — would likely be more likely to lower U.S. oil prices than raise them.
The reality is that although Venezuela has vast reserves – around 17% of the entire planet’s oil is under Venezuelan soil – its production is low. Production decreased by 75% between 2013 and 2020, according to the Financial Timesafter successive Chavista regimes nationalized oil companies, expelled foreign oil drilling skills and triggered a flight of their own drilling specialists. It now provides less than 1% of the world’s daily oil supply.
TradingEconomics.com
In order to exploit the full potential of Venezuelan oil, American companies would need absolute guarantees that their assets in that country would not be renationalized; that they would be allowed to commercialize what they find; and that they would be free to explore Venezuela’s Orinoco oil belt in search of wells. THE the logistics are great and would require billions of investments and years of construction.
In this context, traders were definitely in a risk-taking mood this morning. S&P 500 futures rose 0.29%, following a sharp rise in markets in Asia and Europe. The STOXX Europe 600 was up 0.45% at the start of the session; Japan’s Nikkei 225 rose 2.97% and South Korea’s KOSPI rose 3.43%. Even Bitcoin is having a good day: it sits at $92.7k this morning after spending much of the Christmas period in the $80k range.
Similarly, following Trump’s renewed threat to invade Greenland, investors flocked to defense stocks globally. German arms manufacturer Rheinmetall was up 7.4% before lunch in Europe; Swedish Saab AB (planes, not cars!) increased by 5.75%; and Japan Mitsubishi Heavy Industries increased by 8.39%.
The private sector is already in action. A former Chevron executive raises $2 billion fund for Venezuelan oil projects while Charles Myers, president of Signum Global Advisors, said he wanted visit Venezuela in March.
It’s also a rare good day for the US dollar. “The first reaction today was to push the dollar higher,” ING analyst Chris Turner told clients this morning. “The first market reaction to Saturday’s extraordinary events in Venezuela was a slight flight to quality, where gold and the Swiss franc are higher, and the dollar has also found some support. The dollar rose 0.32% on the ICE US Dollar Index (which compares the USD to a basket of major foreign currencies) despite a 9% decline over the past 12 months. Oil contracts are settled in dollars, so when the market is particularly active or volatile, demand for dollars increases, strengthening the greenback against others.
Here’s a look at the markets before the opening bell in New York this morning:
- S&P 500 Futures Contracts were up 0.29% this morning. The last session closed up 0.19%.
- STOXX Europe 600 was up 0.45% at the start of the session.
- United Kingdom FTSE100 was up 0.2% at the start of the session.
- from Japan Nikkei 225 was up 2.97%.
- China CSI300 was up 0.9%.
- South Korea KOSPI was up 3.43%.
- India NIFTY50 was down 0.3%
- Bitcoin rose to $92.7k.
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