The capture of Venezuelan President Nicolás Maduro by the Trump administration over the weekend has thrown a massive geopolitical wrench into the energy markets. While the knee-jerk reaction for crude traders might be to bid up prices on uncertainty, the analysts at Scotiabank are warning that the trade isn’t that simple.

Scotiabank’s Global Equity Research team characterizes the development as “mixed” for the oil market. In the immediate term, you might see oil prices tick higher as the market digests the chaos and potential security vacuum in Caracas. That’s happened today with WTI crude up $0.89 to $58.26. The analysts note that unless the new government can quickly secure the streets, production growth will be extremely limited and could even fall if violence breaks out. However, the longer-term view is decidedly bearish for crude. They see this as the inverse of the 1999 Chavez election, potentially opening a new chapter where a pro-Western Venezuela ramps up output and complicates OPEC’s ability to manage prices.

Scotia write:

“Venezuela will need a colossal amount of funding to rebuild, with oil the country’s only viable source
of funds. As a result, regardless of who is in charge of the new government, boosting oil production
will be its highest priority. Similar to Libya and Iraq, we expect Venezuela will be exempted from any
OPEC quota in the coming years. In our base case, we think production will begin to rise in 2027 or
2028, and could reach 2 mmbbl/d by early 2030s. However, actual pace of production growth will
greatly depend on the security situation on the ground”

I think that’s optimistic but for today’s price action, there are big moves in oil producers.

For equity traders, Scotiabank identifies a very specific hierarchy of winners, and ConocoPhillips (COP) is sitting at the top of the list. The bank views COP as the biggest potential near-term beneficiary because of the company’s massive outstanding claims against the country. Following the 2007 nationalization of their assets, COP is owed approximately $11 billion. If a pro-Western government takes the reins, Scotiabank believes COP could recoup up to $10 billion and potentially rejoin key projects like Hamaca and Petrozuata, which could net them over 100,000 barrels per day of production.

The outlook is murkier for the other majors. Chevron (CVX) is the only US major that never left the country, which might seem like an advantage, but Scotiabank warns this could actually complicate relationships with a new administration that might view them as having been too cozy with the previous regime. Exxon Mobil (XOM) has outstanding claims of roughly $1.6 billion, but relative to the size of the company, the potential upside is considered small.

There is also a cautionary note for Canadian energy investors. Venezuela sits on massive reserves of extra-heavy oil. If production eventually ramps up, it will likely flood the US Gulf Coast with heavy barrels, competing directly with Canadian exports. Scotiabank points out that this could widen the light/heavy oil differential, which would be a headwind for Canadian large caps like Cenovus (CVE), Canadian Natural Resources (CNQ) and Imperial Oil (IMO) that have significant exposure to heavy oil prices.

We are seeing the Canadian names beaten up in today’s price action.

Today’s Percentage Moves