Oil markets weigh chances of Venezuelan regime change Oil markets weigh chances of Venezuelan regime change Oil markets weigh chances of Venezuelan regime change

Oil markets weigh chances of Venezuelan regime change

Commodities 7 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  The oil market's attention has shifted from crude stocks to the dramatic political situation unfolding in Venezuela where opposition leader Juan Guaido has declared himself acting president with several countries including the US and Brazil recognising him as head of state.

WTI Crude oil remains stuck in a $50 to $55/barrel range with ongoing production cuts from the Opec+ group of nations being offset by global growth worries. Earlier in the week, the International Monetary Fund lowered its global economic forecasts for 2019 and 2020 in response to risks including trade tensions and rising interest rates. However the reduction in global growth from 3.7% to 3.5% was viewed as optimistic given the impact of a prolonged US government shutdown together with a weaker outlook for Europe and not least China, which last year experienced the slowest rate of expansion in almost 30 years. 

The Energy Information Administration, the International Energy Agency and Opec all kept their 2019 outlooks for global demand growth stable in January's oil market reports. Downward revisions, however, are now likely to surface following the mentioned downgrade from the IMF and the OECD’s composite leading indicator, which in November dropped to 99.3 points, a six-year low and a level that has previously signaled recession. 

While the weakness during the past 24 hours was driven by forecasts for rising crude and product stocks, the market's attention has since shifted to Venezuela. President Maduro’s dreadful regime, which has driven the population into poverty and misery, is finally seeing a strong challenge from Juan Guaido, the elected leader of the National Assembly. He has declared himself acting president under article 233 of the Constitution, which authorises him to become interim president in the event of “serious misconduct” on the part of the elected president. Shortly after declaring himself as head of state, the US and other nations, including Canada and Brazil, recognised him as the rightful leader.  

Maduro responded by cutting diplomatic relations with the US and ordering all personnel to leave within 72 hours. This was rebuffed by the US State Department with Secretary of State Michael Pompeo issuing the following tweet with a link to the official statement:
Pompeo tweet
The prospect of regime change has been lurking for a long time as Venezuela continued its descent into the abyss. Maduro, just like his predecessor Hugo Chavez, has been kept in power by support from the country’s poorer areas but yesterday’s mass demonstrations where led by protests over failed public services, food scarcity and rising prices.

The outcome of this uprising could have a major impact on the global oil market. The deteriorating economic outlook and lack of foreign investments in its ageing oil industry have triggered a collapse in production during the past few years. Venezuela’s abundant heavy crude reserves are just what the world needs at a time where the US barrel is getting lighter and lighter due to rising shale production. 

A political and potentially a military stand-off with the US could trigger another drop in production while raising geopolitical tensions, not least considering the support Maduro enjoys in Moscow and Beijing. The longer-term outlook, should Maduro be deposed, could see production eventually return to its former level and beyond. In the short-term, the US may respond to an escalated situation by cutting imports of Venezuelan crude, currently around 500,000 barrels/day.
Later today and one day delayed due to Monday’s Martin Luther King, Jr. holiday, the EIA will publish its Weekly Petroleum Status Report. Last night the American Petroleum Institute published numbers which showed strong rises in both crude and product stocks. 
EIA Petroleum Status Report
If confirmed by the EIA it would add further pressure on refinery margins that are already lower following weeks of rising product stocks. Last week, total inventories of motor gasoline reached 256 million barrels and a record level is likely to be reached before the seasonal peak in mid-February.

The first month WTI to gasoline spread trades at $6.25/bbl, the lowest since October 2013 and well below the five-year seasonal average above $14/bbl.

Rising gasoline stocks and falling refinery margins at a time of seasonal slowdown in refinery demand could cause a price negative rise in crude stocks. 
With Venezuelan uncertainty in mind, the outlook for oil remains one of rangebound trading, predominantly within the shown area below. Any geopolitical spike may prove short-lived given the current risks to growth.
Crude oil
Source: Saxo Bank

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.