Barring the Indian stock market, all global and Asian markets kicked off this week on a bullish note, even as geopolitical tensions flared up following US military attacks in Venezuela, which led to the capture of leader Nicolás Maduro and his wife.
Key Asian markets, including the Nikkei 225, KOSPI, and Shanghai Composite, extended their solid gains from the previous trading session, each rising by more than 1% towards today’s close. Overnight, all three major US averages also closed with sharp gains, with the Dow Jones hitting a fresh record high.
Moving to European markets, the pan-European Stoxx 600 gained another 1.6% in today’s session after closing Monday’s session higher by 1%. Other key averages, including the FTSE 100 and DAX, were also trading higher, with gains of 0.60% and 0.14%, respectively.
Markets look past Venezuela tensions on oil supply hopes
The global rally suggests that investors largely ignored the Venezuelan crisis, assuming that the economic consequences of this major geopolitical event would not be negative.
Typically, geopolitical flare-ups can have serious repercussions on markets by lowering risk appetite, as seen in 2022 during the Russia-Ukraine war, which is still ongoing, and similarly during past tensions in the Middle East.
However, the US attacks on Venezuela over the weekend were viewed differently by investors, as sentiment was shaped by the strong possibility of higher crude supplies from Venezuela, which may potentially drive inflation down and could influence further monetary easing.
Besides this, the continued rally in AI and chip-related stocks also kept the global markets bright.
US pushes oil majors to invest big in Venezuela
Although Venezuela holds one of the largest oil reserves in the world, it currently accounts for less than 1% of global oil production. Economically, the country is also weak, grappling with hyperinflation.
US President Donald Trump, on Saturday, said that Washington would take control of the country’s vast oil reserves, with American majors set to invest billions of dollars to revive the struggling Venezuelan oil industry and repair its broken infrastructure.
The statement also triggered a sharp rally in shares of major US oil producers on Monday, as investors anticipate that companies such as Chevron, ConocoPhillips, and other majors could benefit from increased US influence over one of the world’s largest crude reserves.
Historically, Venezuela, a founding member of OPEC, produced as much as 3.5 million barrels per day in the 1970s, representing over 7% of global oil output at the time. Production fell below 2 million bpd during the 2010s and averaged around 1.1 million bpd last year, or just 1% of global production.
US actions could boost Venezuelan oil supply over time, says analyst
If the US succeeds in effectively controlling Venezuela’s oil industry, more of its oil could flow into global markets, potentially exerting a bearish impact on oil prices. However, this effect is likely to be visible only in the long term, due to years of underinvestment by state-owned oil producer PDVSA.
Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA, said, “The US actions in Venezuela, along with the possibility of lifting sanctions and investing in the oil industry, could be positive for global oil markets. Venezuela is currently producing only 0.8% of global output, despite holding 18% of the world’s oil reserves.”
“Investments in the oil industry and ramp-up of production could take years but may eventually lead to significantly higher supplies, thereby easing oil markets,” Prashant Vasisht further noted.
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