Oil prices jump after Iran says critical Strait of Hormuz to remain shut
- Venezuela tensions raise geopolitical uncertainty, but markets currently discount major escalation risks.
- Venezuela’s oil output remains structurally limited, reducing its impact on global supply and prices.
- Oil prices show bearish technical bias, with $56 support under pressure and $55 next target.
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The start of the year has been shaped by events in Venezuela, where US special forces carried out a major operation that led to the capture of President Nicolas Maduro and his transfer to a court in New York. While US authorities have cited accusations linked to drug trafficking, many see the move as part of a wider geopolitical struggle.
The key question now is how Venezuela’s leadership will respond. Markets are watching to see whether officials in Caracas accept US demands or whether the situation escalates into a broader military conflict.
So far, oil markets have stayed relatively calm. WTI crude prices have moved without a clear direction in the short term, but supply pressure remains visible. This suggests that traders are not currently expecting serious disruptions to oil production.
Will Venezuela’s Mining Potential Flourish?
Official figures show that Venezuela has the largest oil reserves in the world, estimated at about 303 billion barrels, or roughly 20% of global reserves. However, the country has struggled for years to make full use of this potential. Today, Venezuela produces around 1 million barrels of oil per day, which is less than 1% of global production and far below the levels reached several decades ago.
International sanctions and years of underinvestment in infrastructure are the main reasons behind the collapse in oil output. Another challenge is that a large share of Venezuela’s reserves lies in the Orinoco Belt, which is rich in heavy oil. Heavy oil is expensive to extract and requires specialised equipment and additional processing.
Because production levels are already so low, even a complete shutdown in Venezuela would be unlikely to cause a sharp jump in global oil prices.
One possible path forward is the involvement of US oil companies in rebuilding Venezuela’s oil sector. However, this comes with major cost and time challenges. Such investments could take many years to deliver results and, by conservative estimates, would require more than $100 billion.
At present, only limited activity is taking place, mainly involving Chevron (NYSE:CVX), which is operating under special permission from the US government. Other companies have so far stayed on the sidelines, wary of the risk of nationalisation, as previously experienced by firms such as ConocoPhillips (NYSE:COP) and Exxon Mobil (NYSE:XOM), which lost billions of dollars in earlier exits.
Are Bears Maintaining Control?
Oil prices failed twice to break above resistance near $59 per barrel and then moved into a consolidation phase. Price action now suggests a downside bias, with the market attempting to break below support just above $56 per barrel.
If sellers manage to push prices lower, the next likely target would be the long-term lows around $55 per barrel, with the risk of prices slipping even further below that level.
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