Before I left for my break over the holidays, I penned an article outlining what I expected for crude in 2026. That is not an original idea, I will grant you, but I have found over the years that having a base case: a rational, unemotional, clearly defined view of what, all things being equal, will drive market pricing in the long term. Every short-term opinion can then be weighed against that long-term view in order to set appropriate time horizons and parameters for potential trades.
But, as we now know, all things would not remain equal for longer than a few days into the New Year. Less than a week into 2026, the news broke that the US had successfully completed a military operation to arrest and deport the President of the country with the world’s largest oil reserves, Venezuela. That forced a rethink, but the more I thought, the less the news changed my view of this year.
Venezuelan oil is important. The reserves are huge but have been under-exploited for decades, so at first it seemed as if this would make at least the first bit of my 2026 prediction, for continued weakness early in the year, look pretty smart. The market, however, barely registered the news.
WTI dropped a couple of bucks immediately, but by Thursday afternoon, it was back to where it was before the operation. Brent, the international benchmark, was even less responsive, losing around two percent initially, then bouncing back strongly to a point significantly higher than where…
Before I left for my break over the holidays, I penned an article outlining what I expected for crude in 2026. That is not an original idea, I will grant you, but I have found over the years that having a base case: a rational, unemotional, clearly defined view of what, all things being equal, will drive market pricing in the long term. Every short-term opinion can then be weighed against that long-term view in order to set appropriate time horizons and parameters for potential trades.
But, as we now know, all things would not remain equal for longer than a few days into the New Year. Less than a week into 2026, the news broke that the US had successfully completed a military operation to arrest and deport the President of the country with the world’s largest oil reserves, Venezuela. That forced a rethink, but the more I thought, the less the news changed my view of this year.
Venezuelan oil is important. The reserves are huge but have been under-exploited for decades, so at first it seemed as if this would make at least the first bit of my 2026 prediction, for continued weakness early in the year, look pretty smart. The market, however, barely registered the news.
WTI dropped a couple of bucks immediately, but by Thursday afternoon, it was back to where it was before the operation. Brent, the international benchmark, was even less responsive, losing around two percent initially, then bouncing back strongly to a point significantly higher than where it started.
I am tempted to say that the above charts are evidence that my other contention in the year-end piece, that traders would be focused for most of the year on an improving economic outlook and short-term supply reductions in response to low prices, was true. There may be an element of that to this seemingly surprising price action, but to be honest, it is probably more about the fact that the capture of Maduro is, in oil market terms, a big nothing burger.
Firstly, it is not even clear that anything much has changed in Venezuela. The former President’s hand-picked deputy is now in charge, and the US has not laid out any plan for the installation of anyone else, let alone for a transition to democratic government. Trump’s critics were quick to accuse him of a kind of neo-liberal invasion to force regime change, but that really doesn’t seem to be the motivation here. It seems more likely that the President should be taken at his word when he said that this was about two things…bringing a fugitive to justice and gaining access to Venezuelan oil for US oil companies.
The second of those, you might think, would have an influence on the price of oil, but it isn’t as simple as it sounds. Decades of neglect and political exploitation of oil have left Venezuela’s infrastructure in tatters. Reinvestment has been minimal to nonexistent, leaving huge deficiencies in every phase of oil production, drilling, transportation, pipelines, and refining. Donald Trump has said there will be billions of dollars of investment from US companies to rectify that, but it isn’t really his call. He can encourage it, but faced with crude at relatively low levels, it is unlikely that Big Oil will be rushing to pour money into any area, let alone in a country where so many uncertainties still remain. Even if they did, it would take years to make a material difference to Venezuela’s oil infrastructure.
None of this is to say that there won’t be beneficiaries of all this. Chevron (CVX), the only US oil company with any exposure to Venezuela, will, at the very least, now have hopes of generating a return on its investment there. The stock price reflects that, but the pullback also reflects the reality of how little traders believe things have changed now that the dust has settled. In this case, though, I think the pullback will reverse. Even though change will be slow, CVX is still the best placed company to benefit from any improvement in the situation in Venezuela, and its stock can be expected to outperform industry peers over the next few months.
This is also good news for America’s Gulf Coast refiners. Venezuelan oil is, like much of Mexico’s and crude from the Canadian sands, heavy and dirty, and those Gulf Coast refineries are set up to deal with that. Even if the increase in Venezuelan oil supply is too small to impact crude prices, it could well be enough to improve the outlook for many of those refineries. That is why stocks such as Valero (VLO) soared in the first week of the year. Even after that surge, the impact will be such that further increases in VLO can be expected.
On the other hand, the lifting of the embargo on Venezuelan oil and the possible rerouting of exports from China to the US as a result will hurt operations in other countries that currently supply those refineries, most notably Canada and Mexico. That is why stocks like Canadian Natural Resources (CNQ) have dropped dramatically and, like the positive impact on CVX and VLO, this might be just the beginning of a sustained move.
The capture of ex-President Maduro came as a surprise to most people, but what matters is what comes next. That, as is often the way with this administration, is unclear. Donald Trump has talked of Venezuela “turning over” over 50 million barrels of oil to the US, but we all learned a long time ago that what he says and what actually happens aren’t always one and the same. So, with no clear way forward, no significant change in the Venezuelan regime, and given that renovating neglected infrastructure is a slow process, it seems sensible to ignore this news when it comes to oil prices and to stay focused on the economic outlook. That is effectively what futures markets have done this week, and it is what I would advise you do too, at least for a while.
