Crude prices swing following US attack on Venezuela as traders price-in supply boost

The first full week of the trading year begins with markets digesting the impacts of the US invasion of Venezuela.

Oil prices drop as gold and index futures pop

The markets will start the week focussed on and driven by the events in Venezuela over the weekend. Naturally, the most attention will be on oil prices, which this gambit by the US is in the country is mostly about. Initial moves imply a slight positive supply shock, offsetting risks of short-term disruptions. There’s also attention on the knock-on effect to gold prices amidst heightened geopolitical risks, currencies because of what it may mean for the US Dollar (and the trustworthiness of US assets), and equities because of risk appetite. Early moves show a bid for gold and US futures.

Energy markets face two way risks following events in Venezuela

There’s two-sided risks when it comes to the energy complex. In the short-term, there is the risk of supply disruptions because of the instability in Venezuela, implying upside for prices. In the bigger picture, a part of this move by the US is to eventually unlock Venezuela’s vast crude reserves, implying downside for prices. However, doing so is a long process as dormant industry, derelict infrastructure, a lack of human resources and a dearth of capital means such new supply is potentially years away. There’s also the question of whether the new head of the regime replacing Maduro will be complicit with the US’s demand increase and control output. Ultimately, the most informational value could be in the shape of the futures curve and to what extent the short-end shifts to reflect possible price disruptions and the long-end moves to reflect more ample supply.

OPEC keeps supply plans unchanged as crude prices trend lower

Judging by OPEC’s actions over the weekend, it’s in no rush to recalibrate output in response to the US attacks on Venezuela. It chose to keep production unchanged, with the cartel emphasising stability in the crude markets. Despite downside to prices and a building supply glut in global markets, OPEC isn’t rushing to put a strong floor under prices, ostensibly adopting a “wait and see” approach to market conditions. When it comes to the charts, crude is clearly in a downtrend, with the 50 day moving average a noteworthy level of technical resistance and roughly $US55 a major level of technical support.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)