Among them, Chevron promised to invest $7bn over five years to more than double its own production.

Broadly, Venezuela currently produces around 1.1–1.2 million barrels per day and exported roughly 1.17mbpd in August. If Venezuela eventually doubled that production, it could bring more than 1mbpd of additional supply to the global market.

So yes, the extra Venezuelan supply story is potentially bearish for oil, BUT the latter is much less straightforward than “Venezuela doubles production = another 1.2mbpd of crude hits the market to replace Middle Eastern oil”.

Because first, the extra production would be less than 1% of global oil demand, versus the 20+% that transited through the Strait of Hormuz before the war. On that, Bessent said earlier this week that the Strait of Hormuz would be nothing but a “worthless piece of water” in two years, words pronounced just a few hours before the Venezuelan deals!

Here, he was rather referring to the idea that 70% of the oil that transited through the Strait of Hormuz in tankers could eventually flow through alternative routes instead. Not starting the war would’ve been much better.

Then, much of Venezuela's crude is very heavy and sour, unlike the lighter barrels produced by many Middle Eastern producers. It requires diluents to transport and sophisticated refineries to process.

Therefore, additional Venezuelan production could certainly put downward pressure on global oil prices and, more specifically, on competing heavy crude grades. But it cannot fully substitute for disrupted Middle Eastern supply – especially not in the short run.

So, even though the bigger picture tells us that the US is putting all its weight behind bringing energy costs lower – after all, cheaper energy was Trump’s dream, right? “Drill, baby, drill” – these are medium-term plans. They won’t replace disrupted Gulf barrels today, and they won’t pour cold water on heated inflation expectations in the short run.

Hawks rule

We will be facing potential rate hikes in the coming weeks from:

We’ve talked about how Kevin Warsh could be handcuffed and not act before the midterm elections. But if energy prices keep pushing inflation higher, he won’t have a choice unless he wants to set the bond market on fire!

As such, the common denominator of all these policy expectations is crude oil prices. The retreat in crude oil yesterday softened expectations, pulled global yields and the US dollar lower. The latter helped limit the selloff in major equity indices. The S&P 500 eked out a 0.46% gain, while the Nasdaq 100 added 0.23%.

Hope is that, with most of the hawkish central bank expectations are already baked into market prices, if crude prices remain in check – funded or even unfunded comments from US officials may be enough to do the job – we could see appetite return. After all, the S&P 500 just came out of an earnings season in which 8 out of 11 sectors printed double-digit earnings growth!

Data looking weak

Interestingly, the economic data isn’t as shiny. ISM numbers from the US earlier this week showed that manufacturing activity slowed in August while price pressures remained elevated. The JOLTS data suggested that job openings came in slightly below expectations in July. And yesterday’s ADP report came in softer than expected, showing that the US economy added around 38K new private-sector jobs last month, less than the roughly 47K pencilled in by analysts.

The latter certainly helped pull the US 2-year yield lower, along with the crude price, because when Kevin Warsh spoke at the Jackson Hole meeting last Friday, he pointed to resilient US growth and a stable jobs market.

If the US jobs market starts looking weaker, the Fed must readjust its policy stance by softening its tone. And the latter would mean fewer, smaller rate hikes, hopefully lower borrowing costs across the yield curve – because slower jobs growth should also tame inflation expectations – and could put a floor under any equity selloff.

So this week, I believe that bad news from the jobs data could echo as good news across markets. But for the magic to operate, we need crude prices to top out.

On the individual front, Dell announced better-than-expected earnings after Tuesday’s closing bell, sending the stock price more than 15% higher, while Broadcom fluctuated between gains and losses after the bell. The company did better than expected on both earnings and revenue, printed a 221% surge in AI chip sales, but slightly soft Q4 guidance took some shine off the beat and resulted in a small post-hours loss of more than 1%.

European and US futures are timidly in positive territory. All eyes are on oil, as investors await tomorrow’s US jobs data.