Chevron, US Oil Stocks Rally as Trump Vows Venezuela Revival

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's check in with Vincent Piazza, Senior Equity Research Analyst covering all the energy space for Bloomberg Intelligence. Vincent, if you're a big oil company like a Chevron, like an ExxonMobil, you're waking up here over the past couple of days. How are you viewing Venezuela these days as an investment opportunity if you're one of these big oil companies?

1:45Well, if you're Chevron, you've been in country for almost a century now, right? So you take a longer term view. The assets have been renationalized and privatized and renationalized a couple of times, right? So Chevron has been there. They've had a foothold in that country throughout the more controversial times. And so they are a direct beneficiary. But again, it's going to take time. This isn't something that, you know, although the military action didn't harm any of the facilities, the facilities have been in decay and have been underinvested in for several years throughout the nation. So this is going to be a slow grind higher.

2:31You know, think about that the nation was producing more than 3 million barrels a day at its prior peak. And that peak was sometime in the 70s, and it was right around 3 million in the early noughts before it was nationalized. There's somewhere around a million barrels a day now. So it's going to take a lot of time and a lot of investment to get back to that. So we shouldn't be jumping the gun here. But eventually, yes, when you think about where those flows are headed, the one major beneficiary, the one group that will likely benefit the most is really the U.S. Gulf Coast refining sector because of their slate, because of what barrels that they need to maximize their refining capacity.

3:23So in the U.S., the refining slate is really geared toward the heavier barrels that are produced in Venezuela and also in other parts of Latin America. So what this will do, it will put pressure on that light heavy differential. It will bring heavy barrel prices down and it will benefit the margins of the refiners. Right. Chevron and Exxon also have refining capacity, Coker and Hydrocracker capacity along the Gulf Coast, and they will benefit eventually. This isn't something that's going to happen tomorrow, next week, maybe not even next year. But over time, we see those margins improving as that differential widens out with pressure on the heavy barrels.

4:15OK, so you say the Gulf Coast refiners certainly benefit. The ones that don't benefit seem to be some Canadian oil sands companies, which also produce heavy crude. We're seeing declines in Canadian natural resources, Synovus Energy and Suncor Energy. Is that just a knee-jerk reaction or is there something more to this? No, eventually you'll see pressure on those barrels because once you have more flow coming from Venezuela, it'll put price pressure on those barrels from the Canadian oil sands down into the U.S. And so more supply means price pressure. And so there will be a steady bleed south of those prices as more flows come from Venezuela.

5:03Eventually, once that's locked, once that is unlocked, it's going to take time. But I think the the losers there would be those heavier barrels coming from our neighbors up north. Stay with us. More from Bloomberg Intelligence coming up after this.

5:24You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. One of the most read stories on the Bloomberg terminal today starts with this lead paragraph. After the U.S. raid that captured Venezuelan President Nicolas Maduro put America's allies and adversaries on notice, President Trump has a new world order of his own. And obviously that may have implications for a lot of different parts of the marketplace and different industries out there, one of them being aerospace, defense, airlines.

6:03Let's get the latest there. We're joined by Will Lee, aerospace and defense analyst for Bloomberg Intelligence. And George Ferguson, senior aerospace, defense and airlines analyst. George is down in Princeton. We've got Will here in our New York studios. Will, I'll start with you. You've covered the defense companies for a long time here. Are they sensing that there might be a new world order in one that even though President Trump ran on the, you know, the, that his campaign said, we're not going to get in any of those wars outside of the U.S. We're not going to bother. But sure, we have. What did the defense contractors say?

6:36You know, in terms of looking at the reaction with the stock performance of the U.S. difficult contractors versus the Europeans, it seems that the Trump administration, the Venezuela strike was a limited military action. It is an increased expansion in military role in nation building. This is more, say, law enforcement action. And so a lot of the assets that were being used to execute Operation absolute resolve is something that has been or will be used for the Asia-Pacific pivot in terms of the shipbuilding, in terms of the need for more manned aircraft and precision and long-range strike munitions.

7:21George, he served in Iraq as an Army intelligence officer in 2003. So you kind of know the back, how all these operations kind of get planned out, executed. George, and it looked like the U.S. military performed extraordinarily well here. What are you sensing in terms of any difference about how the military folks are thinking about their role here? Because it looks like the focus is going to be changing and focusing a little bit more on this hemisphere. Yeah, so I mean, I think that, you know, we've kind of seen the Chinese and the Russians make some inroads in Latin America. You know, specifically, they were involved in military supply inside Venezuela, as well as taking some of the oil out of there.

8:03And so, I mean, I think that the Trump administration is turning back towards the Gulf of America, the Gulf of Mexico, whatever you want to call it, and Latin America and saying, hey, this is an area where we're going to be the primary influencer. We don't need, you know, sort of Russian and Chinese meddling around here. And so I think you're going to see, you know, more military, I don't want to say action, but at least more military presence around the region. As Will said, though, look, I mean, I think, you know, as we would, as we look at the Pentagon, we look at defense stocks, we always think of what the pacing threat is.

8:48And the pacing threat is who's the Pentagon focusing on as they build their capabilities and train their soldiers and think about where the risk is of a major conflagration here in the future. And that pacing threat, I think, still is China. And so you're going to still see the majority of the money spent on systems that are needed in Asia to project power. But I think you may find, again, U.S. forces hanging around our southern neighbors a little more than maybe some of them expected when they joined the military. Hey, Will, talk to us about just the environment for defense spending. How have the last couple of budgets been?

9:29How's the upcoming budget look? I mean, is the U.S. military still getting what it needs? Yeah, so I would say that with the fiscal 26 budget, it was a little bit of anomaly because you have that large reconciliation bill. that was passed last year that added about$113 billion to the overall defense spending. But generally, we see that the defense spending will probably rise gradually. Not anything that's going to be a step function increase like what we saw with the 26 budget. So something along the lines of maybe around$1 trillion, which is a 2-3 % increase from this year. George, so going back to kind of the hot spot areas of the world here, Do you feel like our defense, our military, if one can make an argument, it just feels like it's being stretched so thin.

10:17There's stuff going on, obviously, in the Ukraine. So you've got to keep your focus on Europe. We've got the Middle East, of course, China, as you mentioned earlier, and now, you know, kind of Latin America here. Is there a concern when you talk to folks within the industry that maybe this military is getting stretched a little thin here? Yeah, I mean, I think there's always that concern. And I mean, the U.S. military, you know, continues to be, I think, in the of the free nations around the world. It's the largest. It's the most capable, as we saw. But it also gets, you know, a lot of a lot of missions get pushed upon it to do.

10:54So it's always sort of stretched too thin. I just, you know, I think that's part of the discussion that Trump is having with Europe right now. It's not always conducted maybe the most elegantly. But I think part of the discussion is you're a big economic block. You have a lot of GDP strength behind you, about 80 percent of what the U.S. has. Yet your military is almost nothing. Yep. And we really need you to sort of step up, step up not only your manpower, but your capabilities, you know, step up your buy of equipment, high end equipment and invest in technology. so you can bear some of the burden that we have managing all these challenges around the world.

11:39So it's certainly stretched too thin. I think we're hoping allies will come into the game more. Stay with us. More from Bloomberg Intelligence coming up after this.

11:51You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I guess one of the lessons we all learned from Iraq was if you break it, you own it. And that's why I think it's leading a lot of folks to ask the question today. OK, Maduro is out as leader of Venezuela. And most people agree that's a good thing in and of itself. But now what's the policy going forward? So let's talk to some smart people about this coming up.

12:24Aaron David Miller, senior fellow at the Carnegie Endowment for International Peace down in Washington, D.C. Aaron, what did you make of the news over the weekend out of Venezuela? Thanks for having me, Paul and Scarlett. I don't know about you guys. I have more questions than answers. I worked for Republicans and Democrats, voted for them, Jimmy Carter, Bush 43. It just seems to me that when the U.S. deploys its forces abroad, it needs to ask some pretty basic questions. Not just can we, but should we? What's next and what's it going to cost? And I think what we know almost 72 hours into this is that a very bad man, a bad actor and his wife have been taken offline.

13:07The U.S. military has demonstrated a tactical brilliance, extraordinary, an extraordinary complex set of circumstances. Beyond that, it's hard for me to understand what the administration's end goals here are. Is it a control of oil and oil to produce a regime that's stable, not caring whether it's democratic or not? And then how does the United States in a country roughly what, twice the size of California with 31 million people? Embassy's been closed there since 2019. How does the Trump administration make its impact and its influence on internal Venezuelan politics felt? And how does it bend the Maduro-lite government to its will?

13:53Those are the core questions I've got this morning. Yeah. And these are great questions to pose. They feel unanswerable right now, Aaron, because we don't know how it's all going to play out. If you were running a neighboring country of Venezuela, what does this mean for for Cuba, for Colombia? Because the president seemed to imply that they were next on his target list. Well, they're bad actors, certainly on the term administration list. It's always Greenland, or at least the Danes who, in the president's view, really shouldn't be in control of Greenland. I think, look, the Colombians already come out against this pretty strongly.

14:34So is the Cubans. Eighty people, civilians and military, were killed in this operation. Press is reporting that 32 of the 80 were Cuban security personnel. So I think one of the demands, I suspect, to the Trump administration as it deals with this Maduro-lite government headed by right now the acting president, Delcey Rodriguez, is to basically get this government to break its ties, not just to Cuba, but to stop exporting oil to China, to Russia, and to Iran. Russians are already concerned about this, convinced that if the Americans control the largest proven oil reserves in the world, that they'll flood the market and price of Russian crude is going to drop.

15:27going to drop. So there are a lot of echoes and ripples here. But for the moment, I think the real core question is, who exactly is the administration going to work with in order to accomplish its goals in Venezuela? And right now, it seems to me, they're banking on stability and prepared to work with the remnants of Maduro's government, if that is in fact the case, then I think the lift is going to be a lot harder. The Venezuelan military has not spoken, but they've got about 123 ,000 total forces. They've been humiliated by the U.S. military. They can't be happy about this. And they're probably relieved in the sense that the president has all but dissed the Nobel Prize winner, Río Machado, of one of probably the most popular Venezuelan politicians in the country today.

16:23So again, a lot of questions probably should have been asked before Grant day one, but it's all going to come out in the wash, whether it's positive or negative remains to be seen. Aaron, about 30 seconds left. What do we know about the existing situation in Venezuela? Can this government keep it together? Or is it do we run the risk of some type of chaos ensuing? You know, a borrow line from Sam Adams in our revolution when he said basically, in reference to the British, whether they're going to hang together or hang separately, it would seem to me that the Maduro government, which the administration has described as literally a crime syndicate, has a stake in trying to maintain the degree of cohesion to see exactly how the United States, what kind of pressure is the United States going to bring?

17:14And can the acting president, Delce Rodriguez, keep her feet in both camps, pleasing the Trump administration on one hand, but also keeping her ties with the rigid current regime? Stay with us. More from Bloomberg Intelligence coming up after this.

17:35You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's check in with Edward Price, non-resident senior fellow at NYU. Ed, President Trump certainly made good on his strong rhetoric, really, over the last several months as it relates to Venezuela. What is your view now that we've had a little bit of time to digest this news? Hey, Paul. So on the one hand, it's a very, very good thing that the United States has the power and the reach to monitor and seize drug dealers and bad guys, even if those bad guys happen also to have a side hustle as the president of a sovereign country.

18:24On the other hand, it could prove in the long run to be a bad thing that any power seizes the president of any other power, even if that president is also a drug dealer. And this is a net calculation that we will not know the full effects of as people who watch, you know, monitor the situation, as the phrase goes, and watch history in real time, probably for another 20 years. And that is another way of saying that maybe other powers elsewhere in the world will decide to follow this example. That said, they don't quite have the capability we did. And I'm very heartened to see that the United States can still pull this kind of thing off.

18:57We can pull it off. But then what happens? You heard the president talk about how we'll run Venezuela and the new president, Delce Rodriguez, the acting president who's been sworn in, would work alongside the U.S. What does that mean from where you sit, that the U.S. will run Venezuela? I think it matters more what it means from where the Venezuelans sit. And it could be that the remnants of the Maduro regime do, in fact, comply, seeing as they're facing the barrel of a gun. It might be that they get on board. And let's not forget that Maduro himself offered some kind of deal on the oil industry, on the energy industry.

19:34But on the other hand, we don't know what run Venezuela means. It could be that Venezuela ends up in some kind of further or extended civil collapse. The economy has lost about three quarters of its GDP in recent years. Its total energy production has been down annualized 8 % between 2011 and 2021. So it's already more or less on its knees. And I would suggest that we're at something of a fork in the road. Yeah. What do you think next steps are likely to be here in Venezuela? Because I guess what we all want to avoid is something where the U.S. and its resources really need to get involved here.

20:11How do you think this might play out? Well, again, as I say, this is a widespread. My money would be on the Venezuelans getting in line broadly. The United States has demonstrated an incredible capability. to. And part of the reason that we had our fleet there for so long, I imagine, was to get people to think in Venezuela about whether or not they actually wanted us to put boots on the ground or continue with a second wave military strike. And I would add in as well that it's important to look at what Venezuelans think. And Venezuelans around the world and also in Venezuela do seem to be very pleased that Maduro is gone.

20:47Maduro was and is a bad guy. We're going to find out just how bad at noon and in the coming weeks, no doubt. So I think the Venezuelans will probably welcome this liberation, if you like, albeit there are elements within Venezuela and within Colombia, and of course, within Cuba and Russia that would probably want to see something else go down. Well, let's talk a little bit about Russia, but in the context of whether this ousting gives Putin the green light to renew efforts to topple Vladimir Zelensky, whether China can push forward with removing Taiwan's president? So this is the multi-billion dollar question, I think.

21:25The Secretary of State Marco Rubio has put forward the proposition that the United States has the right to break international law if it is enforcing its domestic law. And that's another way of saying that the United States has long looked at international law askew, because of course, the United States is based on its constitutional law and cannot supersede constitutional law. So we will do what we want to do in the world. And as I say, Maduro is and was a bad guy. So I think in the short term, it's a good thing that we did it. Putin has tried to assassinate Zelensky more than once. And I'm sure there are a few officials in Taiwan that the Chinese would like to get their hands on.

22:02And we could well have let the genie out of the bottle, to your good question, on this kidnapping of foreign leaders as a new norm. I mean, the caveat, again, is that the United States can do it. We just rolled over Chinese air defense systems, and we have the best intelligence military in the world. So whether other countries can do it is an open question, but I think you're right to suggest that they may try. How worried should Cuba be? Should Greenland be? Colombia today? Well, I mean, my eyes are on Greenland. I've always said to you guys that I think the president is serious in his foreign policy declarations.

22:40And there is a strategic sense in some way, a strategic rationale for the United States controlling Greenland, because of the president rightly points out there are Russian and Chinese incursions in that area. And it's going to get more and more as climate change continues. I think Mexico should probably have a think about how many cartel members it's harboring. And as for Cuba, again, we've long had a relationship that is adversarial with Cuba. And I wouldn't myself be opposed to a similar operation there. But of course, you have to then, as you've pointed out in these questions, start to wonder about what kind of international environment you're introducing.

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