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 this would not have much effect on the price of oil—at least in the short term. U.S. oil company stocks jumped up sharply in overnight trading. Chevron was up 7.82% premarket, Halliburton was up 8.45%, ConocoPhillips rose 7.54%, and ExxonMobil climbed 3.95%. That, again, was something of a surprise, given that the potential for extra supply from Venezuela—assuming President Donald Trump gets the cooperation he wants from Maduro’s successor—would presumably be more likely to suppress U.S. oil prices than raise them.
The reality is that although Venezuela has vast reserves—about 17% of the entire planet’s oil is under Venezuelan soil—its production is feeble. Production declined by 75% between 2013 and 2020, according to the Financial Times, after successive Chavismo regimes nationalized the oil companies there, kicked out foreign oil drilling expertise, and triggered a flight of its own drilling specialists. It now supplies less than 1% of daily global oil supply.
In order to tap the full potential of Venezuelan oil, U.S companies would need cast-iron guarantees that their assets there 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 for wells. The logistics are formidable and would require billions in investment and years of building to complete.
In that context, traders were in a decidedly risk-on mood this morning. S&P 500 futures were up 0.29%, after markets rose strongly in Asia and Europe. The STOXX Europe 600 was up 0.45% in early trading; Japan’s Nikkei 225 was up 2.97%, and the South Korea KOSPI was up 3.43%. Even Bitcoin is having a good day—it’s at $92.7K this morning after spending much of the Christmas period in the $80K band.
Likewise, following Trump’s renewed threat to invade Greenland, investors piled into defense stocks globally. German arms manufacturer Rheinmetall was up 7.4% before lunch in Europe; Sweden’s Saab AB (aircraft, not cars!) was up 5.75%; and Japan’s Mitsubishi Heavy Industries was up 8.39%.
The private sector is already on maneuvers. One former Chevron exec is raising a $2 billion fund for Venezuelan oil projects while Charles Myers, chairman of Signum Global Advisors, said he wants to visit Venezuela in March.
It’s a rare good day for the U.S. dollar, too. “Today’s initial reaction has been to send the dollar higher,” ING analyst Chris Turner told clients this morning. “The initial market reaction to Saturday’s extraordinary events in Venezuela has been a modest flight to quality, where gold and the Swiss franc are bid, and the dollar has found some support, too. The dollar was up 0.32% on the ICE U.S. Dollar Index (which compares the USD to a basket of major foreign currencies) despite being down by 9% over the last 12 months. Oil contracts are settled in dollars, so when the market is particularly active or volatile the demand for dollars goes up, strengthening the greenback against others.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were up 0.29% this morning. The last session closed up 0.19%.
- STOXX Europe 600 was up 0.45% in early trading.
- The U.K.’s FTSE 100 was up 0.2% in early trading.
- Japan’s Nikkei 225 was up 2.97%.
- China’s CSI 300 was up 0.9%.
- The South Korea KOSPI was up 3.43%.
- India’s NIFTY 50 was down 0.3%
- Bitcoin rose to $92.7K.
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