Venezuela crisis: Silver futures jump 3%, gold 2% on safe-haven demand; how oil reacted

Silver futures for March delivery rose 3 per cent, while gold futures for February delivery traded nearly 2 per cent higher on MCX on Monday amid safe-haven buying, after the US captured oil-rich Venezuela’s President Nicolas Maduro and his wife, raising geopolitical tensions. Brent crude prices edged lower. 

The escalation and a subsequent naval blockade has imposed a geopolitical 'risk premium' on energy markets, said Aamir Makda, Commodity & Currency Analyst at Choice Broking.  This, he believes,  will trigger short-term volatility in crude oil and gold that masks a far more profound medium-term structural shift.

"In the short term, a fear premium is causing extreme volatility in heavy-sour oil spreads due to the naval blockade of Venezuelan tankers, creating immediate shortages for Gulf Coast refineries," Makda said.

The event is a 'tactical accelerator' for gold but it does not change the core medium-term thesis, which remains tied to the Federal Reserve, the analyst said.

At 3.11 pm, MCX gold futures for February 5 delivery were trading 1.5 per cent higher at Rs 1,37,796 per 10 grams. Silver March futures were trading 3.29 per cent higher at Rs 2,44,083 per kg. A sustained move above Rs 2,42,000 strengthens the upside bias, opening the path toward Rs 2,46,000–2,55,000, Ponmudi R, CEO at Enrich Money said earlier.  

On gold Ponmudi said a decisive breakout above Rs 1,37,500 signals potential acceleration toward Rs 1,40,000-1,45,000 in the coming sessions. 

Globally, Brent crude futures edged 0.21 per cent lower to $60.64 a barrel. Kaynat Chainwala, AVP Commodity Research at Kotak Securities said the oil market judged the impact of the fresh development on global crude supplies to be limited. "OPEC+ holding output policy steady, the absence of damage to Venezuelan oil infrastructure, and the country’s small share of global output, helped cap any risk premium," he said.

While Makda believes the immediate effect on global oil supply is limited, the change in control over Venezuela's vast oil reserves poses critical implications for heavy crude pricing and long-term supply forecasts. 

Makda noted that current Venezuelan production stands at 800,000 to 1.1 million barrels per day, roughly 1 per cent of global supply. 

The blockade, Makda said has particularly hindered exports to China, risking a short-term production drop by up to 50 per cent due to logistical issues. Venezuela's heavy-sour crude, vital for certain refining processes, would face a quality squeeze, constraining the global market even if total oil supply remains stable, he said.

Stephen Dover, Chief Market Strategist and Head of Franklin Templeton Institute at Franklin Templeton in a note said the US has a long history of intervening in the Western Hemisphere. "The US first formally declared its ‘hegemonic interests’ in the region via the Monroe Doctrine of 1823. It would therefore be incorrect, in our view, to consider today’s action as a fundamental change in US foreign policy, or to suggest that similar steps might be contemplated in the Middle East or elsewhere."

In the note posted on LinkedIn, he said there could be a limited short-term oil supply impact. 

Given the uncertainties about how Venezuela will be governed and given the checkered US history of ‘regime change’ in petro-countries such as Iraq and Libya, oil markets are unlikely to anticipate a rapid increase in crude oil supply from Venezuela, he said.

"Venezuela has the world’s largest reserves of crude oil (over 300 billion barrels), but the poor state of its ageing oil extraction and transportation infrastructure, coupled with the low quality of its ‘heavy’ crude, suggest that even the arrival of political stability will not quickly increase its crude oil output or exports," Dover wrote.