Morningstar has revisited its oil price assumptions following US interventions in Venezuela, as US President Donald Trump prepares to meet with oil executives.
Trump and members of his Cabinet are set to meet top oil-company executives from firms including Exxon Mobil, Chevron and ConocoPhillips at the White House on 9 January.
Trump has indicated the US will run Venezuela until there can be a “proper transition” and has highlighted his desire to substantially increase US private investment in Venezuela’s oil infrastructure.
Oil prices fell after Trump indicated an influx of oil to the market, suggesting tens of millions of barrels of Venezuelan crude could be seized.
Venezuela’s vast oil reserves are thought to be the largest in the world, with roughly 300 billion barrels of reserves, exceeding Saudi Arabia, based on third-party estimates.
Still, Morningstar says production output has fallen to less than one-third of levels seen 50 years ago, representing less than 1 per cent of global supply.
“We don’t plan to alter our fair value estimates or our midcycle oil price estimates of Brent US$65/bbl and WTI US$60/bbl. While significant Venezuelan supply increases to global markets could be bearish for our 10-year forecast, we think it will take years for supply to meaningfully increase.”
Morningstar says Venezuela will require years of large capital investments to modernise its infrastructure.
“We don’t presently expect Venezuela will attract that level of investment until lower-cost production like US shale peaks. While slowing, it still has some runway,” the firm said.
“We apply futures pricing for our assumed near-term pricing. While we speculate we could see some upward price movement, we think it’ll be short-lived. Markets likely priced in Venezuelan supply disruption, and OPEC+ actions and seasonal demand weakness set up a supply glut.”
Global investment manager Ninety One says asset implications from the Venezuela situation in the near term are mixed.
“Oil is more likely to face short-term logistical and risk-premium turbulence than a clean supply comeback story.”
In a base case for the next 3–12 months, Ninety One sees a slow oil production recovery.
“A Chavista regime with better US relations could raise production by roughly 700 kb/d over a year, while still emphasizing that meaningful near-term gains are hard given the state of infrastructure and the complexity of Venezuelan crude. (Venezuela is often said to have more crude reserves than Saudi Arabia, but we would take this with a grain of salt because the figure largely reflects Chávez-era upward revisions to what counts as economically recoverable reserves.)”
In the short term, the firm says Venezuelan bond prices can stay supported by optionality and momentum, but will remain highly headline- and signpost-driven. Over the next 3–12 months for sovereign and quasi-sovereign debt, the bonds have already rallied sharply.
However, given the uncertainties at play, the range of estimates of fair values is unusually even larger than during other past debt restructuring episodes. It is hard to say the market has gone too far.
“Having said that, creditors will have at the back of their minds a scenario of a political transition in which bondholders don’t benefit. In Iraq in 2005, a US-led rebuilding effort imposed punitive, very deep haircuts on legacy creditors after “protective orders” were issued that shielded Iraqi assets from creditors, leaving opportunistic buyers who bought after the 2003 invasion losing money. The market can become cautiously optimistic, but it may be cautious about it.”
Meanwhile, a US ETF provider has applied for an ETF that would track the broad Venezuelan equity market for the first time given the steep share price gains.
The Venezuelan stock market is now up more than 100 per cent since President Maduro was captured by the US.
Documents submitted to the US Securities and Exchange Commission and seen by InvestorDaily reveal that Teucrium Investment Advisors filed for a Teucrium Venezuela Exposure ETF on 5 January.
