Major crude oil benchmarks rose slightly on Dec. 17 on news of a US blockade in Venezuela. The United States has ramped up pressure following its seizure of a Venezuelan oil tanker a week prior. West Texas Intermediate and Brent each fell 5% during the week to lows of $55 per barrel and $59/bbl, respectively.
Why it matters: Geopolitical action tends to make headlines, but we think the futures market has largely ignored the news, as global oil markets look well-supplied. Any Venezuelan supply disruption appears to be baked into major oil benchmarks for now, barring any full-scale intervention.
Venezuela accounts for a small part of the global oil supply, producing about 1 million barrels per day, or just under 1%. Historically, Venezuelan oil has primarily gone to the US, China, or India, as refineries in these countries are specifically built to process heavier crude, a Venezuelan staple.While we use futures to inform our short-term oil price forecast, we’re more concerned with supply glut risks following OPEC+ unwinding its production cuts earlier this year, particularly as we head into the first quarter with seasonally weaker demand.
The bottom line: Oil prices are inherently volatile; a lower price spurs lower investment in new wells from producers, leading to lower supply and higher prices. While energy equities may move lower in the short term, we think this will only serve to set up long-term buying opportunities.
The EIA points to a 2 mmb/d gap between supply and demand over 2026. Still, tightening of the global heavy market could strengthen the prices for grades that the US depends on, specifically Canadian heavy oils that ship via the Trans Mountain pipeline.In the longer term, we point to robust and growing demand via petrochemicals and aerospace as a boon for long-term oil demand, which, coupled with insufficient investment, should lead to higher long-term pricing. So we continue to like names like narrow-moat rated Diamondback, Devon, and SLB.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article.
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