TENSIONS BETWEEN THE U.S. AND VENEZUELA DRIVE OIL PRICES HIGHER; GLOBAL MARKET FACTORS IN FOCUS

THE END OF 2025 HAS BEEN MARKED BY ESCALATING TENSIONS BETWEEN THE UNITED STATES AND VENEZUELA. AS OF DECEMBER 21, THIS ESCALATION RESULTED IN THE INTERCEPTION OF THREE OIL TANKERS IN INTERNATIONAL WATERS NEAR VENEZUELA, WHICH HOLDS THE LARGEST OIL RESERVES IN THE WORLD AND IS A MEMBER OF OPEC.

THE STRAIN BETWEEN WASHINGTON AND CARACAS IS REFLECTED IN OIL PRICES, WHICH ROSE IN FUTURES CONTRACTS DURING EARLY TRADING ON DECEMBER 22. FOLLOWING STRONGER RHETORIC FROM DONALD TRUMP ON DECEMBER 19, INCLUDING THE POSSIBILITY OF CONFLICT, FUTURES CONTRACTS CLOSED HIGH FOR THE THIRD CONSECUTIVE SESSION. THE WTI BARREL, THE U.S. REFERENC, CLOSED AT US$56.52 (+0.9%), WHILE BRENT, THE GLOBAL REFERENCE, ADVANCED 1.08% TO US$60.46 PER BARREL.

DESPITE THE TENSIONS, THE MARKET HAS NOT FULLY PRICED IN THE DEVELOPMENTS. OIL PRICES FELL MORE THAN 1% LAST WEEK FOR BOTH WTI AND BRENT, REFLECTING UNDERLYING SUPPLY FACTORS.

GLOBAL CONTEXT AND SUPPLY FACTORS

MARKET SENTIMENT IS ALSO AFFECTED BY OTHER CONFLICTS, SUCH AS THE WAR IN UKRAINE. ANALYSTS FROM RITTERBUSCH ESTIMATE THAT THE POTENTIAL LOSS OF VENEZUELAN SUPPLY IS MODEST, PARTICULARLY COMPARED TO POSSIBLE ADJUSTMENTS IN GLOBAL OIL SUPPLY IF A PEACE AGREEMENT BETWEEN UKRAINE AND RUSSIA IS REACHED. HOWEVER, THE WAR IS EXPECTED TO CONTINUE THROUGH 2026.

LOOKING FORWARD, ABUNDANT SUPPLY IS EXPECTED TO REMAIN THE DOMINANT FACTOR IN ENERGY MARKETS NEXT YEAR, ACCORDING TO CAPITAL ECONOMICS.

CHANGES IN OIL MARKET DYNAMICS

MARKET SPECIALISTS NOTE THAT CHANGES IN SUPPLY AND DEMAND CAN HELP MITIGATE SHARP PRICE MOVEMENTS. THE TIMING OF U.S.-VENEZUELA TENSIONS COMES AT A PERIOD WHEN OIL PRICES ARE NEAR THEIR LOWEST LEVELS SINCE 2021.

RAFAEL FURLANETTI, PRESIDENT OF ANCORD, HIGHLIGHTS THAT CURRENT VOLATILITY REFLECTS A NEW OIL MARKET, WITH SIGNIFICANT CHANGES IN SUPPLY AND DEMAND STRUCTURE. OPEC, WHICH ONCE CONTROLLED ABOUT HALF OF GLOBAL OIL PRODUCTION, NOW ACCOUNTS FOR AROUND 25%.

THIS SHIFT IS DRIVEN BY NEW PRODUCERS, SUCH AS GUYANA, THE GLOBAL ENERGY TRANSITION, INCREASED PRODUCTION FROM OTHER COUNTRIES LIKE THE UNITED STATES, AND INTENTIONAL OPEC SUPPLY CUTS TO STABILIZE PRICES.

AS A RESULT, EVEN VENEZUELA, PRODUCING OVER 900,000 BARRELS PER DAY, HAS LESS INFLUENCE ON PRICES THAN OTHER FACTORS. FOR EXAMPLE, ON DECEMBER 16, DESPITE ESCALATING TENSIONS WITH THE U.S., OIL CLOSED AT ITS LOWEST LEVEL IN ALMOST FIVE YEARS DUE TO EXCESS SUPPLY AND PROGRESS IN RUSSIA-UKRAINE PEACE TALKS.