Login Open account
Singapore
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.
Venezuela
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. 
Inventories
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

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

Read article

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Read article

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Read article

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Read article

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Read article

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article

  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article

  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article

  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article

  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article

Disclaimer

 The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore
Products & pricing
Asset Management
Platforms
Accounts & service
General
Other
Legal

Losses can exceed deposits on margin products. Please ensure you understand the risks.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning 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. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

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 are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.