Oil companies' shares jumped on Monday, fueled by the prospect of access to Venezuela's vast oil reserves after President Donald Trump said the U.S. would take control of the South American nation following the arrest of its president.
US Energy up over 10%; Valero, SLB Ltd up over 8%; PBF Energy, Halliburton up over 7%; Phillips 66 up 6%.
Venezuela holds the world's largest oil reserves, but production plummeted in recent decades due to mismanagement, limited foreign investment following the nationalization of its oil industry and sanctions.
"We're going to have our very large U.S. oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, oil infrastructure, and start making money for the country," Trump said on Saturday, after American forces seized Venezuelan President Nicolas Maduro from Caracas.
Oil prices, however, were largely flat on Monday, as ample global supplies continued to weigh on the market despite the uncertainty surrounding Venezuelan flows.
Trump has said that the embargo on all Venezuelan oil exports would stay fully in effect for now.
Venezuelan crude is a heavy sour with high sulfur content, making it suitable for producing diesel and heavier fuels, albeit at lower margins compared with other grades, particularly those from the Middle East.
"This type of crude aligns well with the configuration of U.S. Gulf Coast refineries which were historically designed to process such grades," said Ahmad Assiri, research strategist at Pepperstone.
Chevron's existing presence in Venezuela under a U.S. waiver has positioned it as a potential early beneficiary of any policy shift, while refiners stand to gain from increased availability of heavy crude closer to home.
RETURN OF ASSETS
The U.S. action could also pave the way for the return of assets seized by Venezuela in 2007 under late leader Hugo Chavez, analysts at J.P. Morgan said.
They said ConocoPhillips and Exxon Mobil have significant arbitration awards pending, which have a higher chance of recovery.
"In total, ConocoPhillips has outstanding claims approaching $10 billion, while Exxon's outstanding damages appear to be in the $2 billion range against their original claims that exceeded $15 billion," the analysts said.
Shares reflected the optimism, with ConocoPhillips rising 7.5% and Exxon up 4.3%.
Shares of oilfield services firms, whose technology would be crucial to boosting Venezuela's crude production, also climbed. Baker Hughes, Halliburton and SLB were up between 7% and 9%.
Still, analysts cautioned that any meaningful recovery would likely take time, given political uncertainty, infrastructure decay and years of underinvestment.
Venezuela was producing as much as 3.5 million barrels per day (bpd) in the 1970s, accounting for more than 7% of global output.
Production slid below 2 million bpd in the 2010s and averaged about 1.1 million bpd last year, or roughly 1% of global supply.
