Oil Market Expectations Following the Venezuelan Intervention

What You Need to Know:

• Venezuela disruptions may briefly lift oil prices, but a supply glut will keep prices low.
• OPEC policy and excess supply mean any price spike above $60/barrel is likely unsustainable.
• Venezuela exports 0.8 million bpd; most now go to China with U.S. share sharply reduced.
• Short-term supply risks are muted by China’s crude stockpiling and global oversupply.
• Major production increases in Venezuela need years and billions in investment.
• U.S intervention has limited immediate impact; focus shifts to medium-term export recovery.
• FX impact is muted; undervalued commodity currencies like CAD/AUD may benefit as oil prices eventually recover.

Venezuela has seen its most acute geopolitical crisis since 1902-1903. Even so, analyzing more than a century of Venezuelan geopolitical risk in energy markets, we find no precedent in modern history that has resulted in an immediate and large-scale response in energy supply risk premia. With global crude oil markets facing a glut over the coming months, we expect any impact to supply risk premia to be mitigated.

Oil Market Expectations Following the Venezuelan Intervention

Any Venezuelan flow disruptions should have only a moderate impact on oil prices and no outsized contribution to flight-to-safety moves in global markets. While the fundamentals are likely to be bearish for West Texas Intermediate (WTI) oil for a good part of 2026, investors should not be surprised if the immediate move is a short squeeze toward US$60 per barrel, given the significant shorts in the market and the emergence of higher geopolitical risk premium.

Position squaring may drive the initial higher price moves given the heightened uncertainty over near-term supply disruptions to China. But there is a significant supply glut in first half of 2026, and OPEC announced it will continue to pursue its current policy. This all suggests that a squeeze above $60 is not sustainable, and prices should remain low in the first half of the year before gradually rising in the second half. Investment to drive any significant increase in Venezuela's capacity is measured in years, not months.

We expect a limited impact from Venezuela's recent geopolitical crisis but reiterate the potential for geopolitics to structurally alter global energy market dynamics in 2026. Any immediate-term disruptions to supply risk premia are likely mitigated by the ongoing glut, leaving markets focused on the risk that sanctioned barrels may instead enter into the system and sentiment regarding the prospect of a medium-term recovery in exports. We also expect a muted war-effect owing to the limited nature of the operation.

Show me the barrels

Energy traders must firstly scour for signs of immediate disruptions to Venezuelan oil exports and secondly assess the potential for subsequent large-scale increase in exports. Existing Venezuelan production and exports have adapted to the recent sanctions, relying on a network of Chinese, Iranian and Russian counterparts for both diluents and export logistics, potentially resulting in some limited operational disruptions amid the chaos until supply chains are reestablished.

For context, Venezuela has exported approximately 0.8 million barrels per day (bpd) crude this year, or less than 1% of global liquids supply. That is up from 0.7 million bpd last year. In 2024, 40% of Venezuelan exports went to China, while 35% went to the United States. In the first half of 2025, after Trump took office, the share of exports to China increased to 60%, and the portion sent to the United States declined to 20%. Destination data is not finalized for 2H25, but we estimate 80% Venezuelan crude to China and 10% to the United States. China has been stockpiling significant amount of crude this year, with estimates between 500,000 and 1 million bpd.

Any such temporary disruption would be readily absorbed by the current glut, and the impact to flat prices will be further muted by the extent to which Venezuelan crude has contributed to Chinese stockpiling. In turn, the market will instead remain focused on the potential for sanctioned barrels to enter into the system and sentiment regarding the prospect of a medium-term recovery in exports, particularly if tanker blockades and sanctions are eased under a U.S.-friendly regime.

Venezuela Production – Not What it Once Was

Venezuela Operation Does Not See Increase in Supply Risk Premia

Flat price volatility set to increase as markets digest headlines

Heavy crudes that compete with Venezuela crude may take a near-term hit if exports are allowed to return. However, should disruptions remain, we expect these competing barrels may counter-intuitively receive a bid. The biggest near-term loser stands to be Chinese independent refiners who source roughly 600,000 barrels per day from Venezuela at a material discount. The potential loss of these discounted sanctioned barrels could see refiners forced to bid for benchmark crudes, adding upward price pressures.

On the other hand, if production is kept stable and able to be sold on the open market, it could increase crude supply and therefore represent a bearish catalyst for prices as China would not necessarily purchase alternative crude supplies to backfill crude going into inventories. This second scenario could also benefit U.S. refiners as it would increase availability of heavy sour crude.

Concerns of near-term production increases are overblown

While a loosening of tanker blockades and sanctions could ultimately ease logistical pressures, we consider material production or export increases as unlikely. Heavy Venezuelan crude needs to be blended to be exported, and these diluent imports have been harder to source given an increased reliance on Russian naphtha.

Even a near-term disruption to diluent imports would cause production to fall; this has already been an issue for production in recent years. Alternatively, Venezuela has some 600,000 barrels per day worth of upgrader capacity to produce syncrude, but these facilities are rarely operational, and recent outages have taken nearly the full capacity offline.

Neglected infrastructure requires large scale capital expenditures

Industry estimates suggest production could recover toward 2 million barrels per day (up 500,000 – 1 million bpd from current levels) within one to two years under favorable conditions. Beyond that, at least $20 billion worth of investment and a timeline spanning towards 10 years would be needed to add an incremental 500,000 bpd worth of production, with some $50 billion – $60 billion of investment required to return to 1998 levels. Such production increases would also require the U.S. oil majors to buy in, which is far from certain given current weakness in prices and the elevated risk profile.

Rewriting the geopolitical regime

Maduro's ouster reaffirms tail risks relating to a regime change in Iran over the course of 2026, potentially resulting in a structural change for the Gulf region and dramatically altering energy market dynamics. The Twelve Day War revealed that the risk of disruptions in the Middle East is mitigated. However, while supply risk premia was contained during the Twelve-Day War, OPEC+ spare capacity would be more constrained to offset disruptions in 2026. This tail risk is further augmented by significant unrest and follows comments from both President Trump and Benjamin Netanyahu.

Muted war-effect, for now

Since Bretton Woods, commodities have tended to rise during a war involving the reserve currency nation. This effect is partly due to additional demand for commodities for the war effort and potential supply-side disruptions. However, it can also be due to the reserve currency partly losing its store of value function. In our view, the three-hour operation by the U.S. over the weekend bears little consequence for demand or for the fiscal trajectory. We believe it is therefore only consequential in as much as it disrupts barrels in the immediate-term; in as much as it can reignite Venezuela's oil sector in the medium-to-long term; or in as much as it raises attention on the risk of regime change in Iran. We expect muted inflows into gold and relative safe havens as a result.

Effect on FX

Markets have seen a muted impact from the Venezuela headlines. The actions of the U.S. in the past year with the goal of securing oil, gas and critical mineral reserves, and with the AI boom being housed in the country, signify that the USD will likely remain overvalued in the medium-to-long term horizon. However, in the near-term, our baseline macro-outlook supports a structural decline in the USD, driven by U.S. convergence to global growth and rates and waning safe-haven appeal.

We expect G10 commodity currencies (CAD, AUD) to do well in H2 2026 as prices lift off from depressed levels, and positioning in those currencies look light compared to peers. Those currencies can also benefit from broad USD weakness and relative central bank divergence between the Fed and the RBA/ BoC. For Emerging Markets however, we expect a rotation from carry to value to be a more powerful driver than terms of trade in 2026. A lot of the Emerging Markets commodity currencies in Latin America have benefited over their Asian counterparts from the carry trade despite weak oil prices. We expect an unwind of carry from reduced yield, stretched positioning and volatility picking up from local political noise. This should benefit the Asian currencies which look cheap and are exposed to a more stable China and global growth outlook.