Venezuelan Bolivar Plummets 25% After U.S. Tariff Announcement

The Venezuelan Bolivar experienced a significant decline following the announcement of a secondary tariff regime on crude oil by the U.S. administration. This move imposes a 25% tariff on countries purchasing oil or gas from Venezuela, targeting major buyers such as China, India, Spain, Italy, and Cuba. The tariffs are expected to disrupt global oil supply chains and benefit U.S. oil companies as Venezuela's customers seek alternative supplies.

This development comes at a time when Venezuela's oil production has already been severely impacted by sanctions and poor maintenance. The country's crude oil production has plummeted from 3.2 million barrels per day in 2000 to 735,000 barrels per day in September 2023. Despite these challenges, Venezuela has been producing about 20% of its oil, close to President Nicolás Maduro's goal of 1 million barrels per day. Chevron Corp., the only major oil producer with a waiver to operate in Venezuela, has been providing a financial lifeline for Maduro’s regime. Chevron has been allowed to operate in Venezuela as an exception to U.S. sanctions, exporting crude to the United States. However, the company recently received a 30-day notice from the Trump administration to wrap up its operations in Venezuela, with a deadline set for April 3.

The secondary tariffs are expected to have a significant impact on the global oil market. U.S. oil companies are likely to emerge as key beneficiaries as Venezuela's customers look for alternative supplies. The tariffs could also disrupt global oil supply chains, with potential implications for oil prices and market stability. Despite the prevailing bearish sentiment, analysts argue that global oil demand remains strong. According to Standard Chartered analysts, global oil demand averaged 102.77 million barrels per day in January—a 2.19 million barrels per day year-on-year increase. The bank forecasts demand will surpass 105 million barrels per day by June and peak at 105.6 million barrels per day in August, with full-year growth projected at 1.41 million barrels per day. They also expect demand to outpace supply in the second and third quarters of the year.

The announcement of the secondary tariff regime has also raised concerns about the potential demand effects of U.S. tariff policies and the potential supply effects of a U.S. switch to policies that are more accommodative of Russian targets. Despite these concerns, oil prices have held up surprisingly well over the past couple of weeks. Front-month Brent has exceeded $70 per barrel at some point on each of the past eight trading days. Speculative positioning, however, remains skewed to the short side of the market, particularly for gasoline and crude oil. Trader sentiment remains negative largely due to concerns over the potential demand effects of U.S. tariff policies and the potential supply effects of a U.S. switch to policies that are more accommodative of Russian targets.

The decline in the Venezuelan Bolivar following the announcement of the secondary tariff regime highlights the potential impact of U.S. tariff policies on global oil markets. The tariffs are expected to disrupt global oil supply chains and benefit U.S. oil companies as Venezuela's customers seek alternative supplies. Despite the prevailing bearish sentiment, analysts argue that global oil demand remains strong, with demand expected to outpace supply in the second and third quarters of the year. The announcement of the secondary tariff regime has also raised concerns about the potential demand effects of U.S. tariff policies and the potential supply effects of a U.S. switch to policies that are more accommodative of Russian targets. Despite these concerns, oil prices have held up surprisingly well over the past couple of weeks, with front-month Brent exceeding $70 per barrel at some point on each of the past eight trading days.