Oversupplied markets soften blow to oil prices from Venezuela developments

Oil prices are expected to see only a limited reaction following the US strike on Venezuela this weekend, according to analysts, despite heightened geopolitical tensions and uncertainty over future supply disruptions.

While experts believe it was still too early to fully assess the market impact, some warn that Venezuela’s oil exports and production were already under pressure before the latest escalation, as noted in an article by The National.

Giovanni Staunovo, a strategist at Swiss bank UBS, noted that the US oil tanker blockade had pushed output lower and that the risk remained that this downward trend could continue if restrictions persist or intensify.

Vandana Hari, chief executive of Singapore-based Vanda Insights, also downplayed the immediate consequences for global oil markets, telling the publicaion that there was “not much beyond another uptick in the Venezuela risk premium.” Her assessment suggests that traders have largely priced in the geopolitical shock without expecting a major or sustained disruption to global supply.

The situation escalated sharply over the weekend when US President Donald Trump announced that American forces had struck the Venezuelan capital of Caracas and captured President Nicolás Maduro, as well as his wife. They are both currently held at a detention center in New York, with the leader facing accusations of running a “corrupt, illegitimate government” fuelled by an extensive drug-trafficking operation that flooded the US with thousands of tons of cocaine, as stated in a newly released US Justice Department indictment.

Despite the dramatic political developments, analysts say the energy infrastructure has not been the direct target of US military action. “The attacks in Venezuela are not targeting oil facilities directly. But the previous attacks on ships and latest sanctions/blockade were already causing production to fall by around 25 per cent,” Amrita Sen, an analyst at market intelligence firm Energy Aspects, told The National.

She added that broader market dynamics are helping to cushion the impact. “The impact on oil prices won’t be severe due to the large expected stockbuilds but unplanned outages in Venezuela, Russia and Kazakhstan are mounting, which will chip away at these builds.”

Oil prices ended last week slightly lower, marking the first trading session of 2026 after recording their worst annual performance in six years. The muted reaction reflects concerns about oversupply, which continue to dominate market sentiment.

Venezuela holds the world’s largest proven oil reserves and currently produces about 1.1 million barrels per day, most of which is exported to China and India, according to Rystad Energy. While this represents only around 1 per cent of global oil supply, the country’s output is distinctive, with more than two-thirds classified as heavy crude.

Amena Bakr, head of Opec+ and Middle East research at Kpler, said geopolitical risks may be underestimated by the market, explaining the absence of a large price premium. However, she stressed that oversupply conditions were limiting concerns about potential losses.

“Oil prices over the past few days traded up slightly at $61 because of geopolitical risk in Venezuela and also the attacks from Ukraine on Russian facilities … so I do expect a small increase in the price when markets open if the geopolitical risk remains high,” Bakr said.

She also highlighted quality-related challenges. “The issue with Venezuelan outages is rated to the quality of the crude. Heavy Venezuelan crude isn’t easily replaced by lighter grades, substitutes tend to cost more and could put upward pressure on refined product pricing. Overall, the impact on markets is muted for the time being.”

By Nazrin Sadigova