Some believed that the action in Venezuela would cause an increase in oil prices – after all, this country is extremely rich in oil deposits, and political unrest usually affects price increases. Now, however, oil is cheaper – which is related to Donald Trump's recent statements.
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But what will be the long-term impact of Venezuelan action on oil? As Saxo Bank analyst Charu Chanana points out, “the most erroneous assumption is that the situation in Venezuela will increase the supply of oil in the short term.”
“Even if the political situation improves, significant production will not recover quickly. This sector needs capital, equipment, people and efficient infrastructure, and this means many years of reconstruction,” he believes.
Additionally, he emphasizes that the lack of a sharp increase in oil prices is not irrational at all: for the prices of this raw material to change permanently, the geopolitical situation must cause real disruptions in supply chains or a broader regional shock. In the short term, Venezuela is not the kind of shock that automatically reduces global supply in a way that forces a significant change in oil prices.
“Many years of neglect and the very heavy nature of the local oil make a rapid increase in production unlikely, even with a change of government,” says Charu Chanana.
1 percent world oil
The expert adds that Venezuela is currently responsible for less than 1%. world supply – therefore the impact of events on the global market is limited.
What might the medium-term impact of the situation in Venezuela on oil be? “The market may begin to take into account the possibility of returning Venezuelan production in the future. Even in a favorable political scenario, this process will be slow. Rebuilding production requires large financial outlays, access to technology and a stable political situation for many years,” says the Saxo Bank expert.
“Global stock markets will most likely continue to ignore the situation in Venezuela unless it leads to real disruptions in supply chains or a significant tightening of financial conditions. Geopolitics has become a permanent element of the market environment, not a one-time surprise factor,” Saxo Bank experts add.
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