Brent Tiptoeing around $60/bbl

US attacks Venezuela, Trump threatens military intervention in Latin America

The headline in geopolitical risks for the oil market is the US strike on Venezuela on 03 Jan, capturing its President, Nicolas Maduro, and First Lady, Cilia Flores. Following the operation, US President Trump said the US would take control of Venezuela, with US oil companies prepared to rebuild the “badly broken oil infrastructure” and begin “making money for the country.” Despite a clear escalation in tensions between the nations, the prospect of greater Venezuelan production has weighed on prices today.

However, Delcy Rodriguez has taken over as the acting Venezuelan president, thus lending some political stability and reducing geopolitical risk. Additionally, given that any plausible increases in Venezuelan production from US investments are unlikely to be seen for some time, prices in the M1 are likely to find a floor. In other geopolitical news, Trump has threatened military intervention in Latin America, specifically targeting Cuba and Colombia, accusing these countries of smuggling drugs into the US. If this comes to fruition, geopolitical uncertainty may support prices.

Oil market participants widely agree that a significant crude glut is imminent; however, the precise level of oversupply remains uncertain. The IEA has taken a particularly bearish stance, estimating a 3.8mb/d glut, as supply growth rapidly surpasses the growth in global demand. Recently, storage of oil-on-water has increased as well, but when these barrels reach land due to rising storage costs, it is expected to put downward pressure on prices. The expectation of an abundance of oil may particularly affect differentials, with the entire Dubai forward curve entering contango early on 05 Jan.

COT ICE data for the week ending 23 Dec showed managed-by-money players seeing the largest weekly increase in length and removal of shorts since 28 Oct. Given that 16 Dec saw the M1 Brent contract close below $60/bbl for the first time in Feb 2021, this substantial increase in longs suggests good buy-side support at lower levels.

From a technical perspective, the $60/bbl handle has proved to be a critical psychological level, with further support sitting at the 2025 low of $58.86/bbl. The $60/bbl handle continues to hold, which may once again encourage buy-side support, as seen in the week ending 23 Dec. Further, the MACD histogram remains above 0, signalling the existence of positive momentum.