Venezuela's upheaval impacts the oil market, with the Big Three oil companies falling collectively. Why does Goldman Sachs remain bearish on long-term oil prices?

On January 5th, due to the sudden change in Venezuela’s political situation, the Hong Kong stock energy sector came under pressure. CNOOC fell over 4%, PetroChina and Sinopec declined simultaneously, as the market readjusted the global oil supply and demand outlook. This is not only a geopolitical crisis but also a shift in the oil market from “geopolitical premium” to “supply revaluation.”

Event Overview and Market Response

What happened

The United States took military action against Venezuela and signaled deep future involvement in its oil industry. This unexpected event disrupted the market’s previous expectations for the global oil market and triggered a chain reaction.

According to the latest news, the “Big Three” Chinese oil stocks weakened collectively on Monday:

• CNOOC experienced the largest decline, dropping over 4%
• PetroChina and Sinopec declined in tandem
• Market risk appetite for energy assets significantly decreased

Why is there such a reaction

There are two underlying reasons: one is the immediate impact of geopolitical risk, and the other is the long-term reassessment of the supply landscape. Venezuela is the country with the largest proven oil reserves in the world, and its political changes directly affect global energy supply. The U.S. military intervention and signals of industry deepening have altered market expectations regarding Venezuela’s oil production.

Short-term vs. Medium- and Long-term Scenarios

Goldman Sachs’s analysis framework clearly distinguishes two time horizons:

In the short term, the direction of Venezuela’s oil supply remains uncertain. It could gradually increase due to sanctions adjustments or be further constrained by ongoing turmoil. However, Goldman Sachs’s medium- and long-term view is more definitive: if Venezuela’s production continues to recover, combined with U.S. and Russian supply growth, it will significantly pressure oil prices downward. This is also the core logic behind Goldman Sachs’s maintained bearish outlook on Brent crude oil in the medium term.

Paradigm Shift in the Market

From Geopolitical Premium to Supply Revaluation

According to BiyaPay analysts, the current oil market is undergoing a critical shift: transitioning from “geopolitical premium” to “supply revaluation.”

What does this shift mean?

• Geopolitical Premium Stage: The market focuses more on geopolitical risks, with premiums reflecting uncertainty
• Supply Revaluation Stage: The market begins to price in actual supply changes, shifting the valuation basis from risk to fundamentals

The initial trigger for Venezuela’s situation was a geopolitical risk premium (potential oil price increase). But once the U.S. signaled deep involvement in the oil industry, the market realized this could lead to increased Venezuelan output, thereby changing the global supply landscape. At this point, the pricing logic shifts from risk premiums to supply pressures.

Potential for Increased Volatility in Energy Assets

During this transition, volatility in energy assets is expected to intensify. On one hand, geopolitical uncertainties persist; on the other, the market’s perception of supply prospects fluctuates. BiyaPay analysts point out that during periods of rising uncertainty, flexible use of cross-market allocations, futures, and contracts will be key to managing changes in the energy cycle.

Summary

The Venezuela situation is essentially a global supply revaluation of the oil market. Goldman Sachs’s bearish outlook on long-term oil prices is not based on geopolitical risks per se but on expectations of increased supply. If the U.S. potentially boosts Venezuelan oil exports, combined with U.S. and Russian supply growth, oil prices face structural downward pressure rather than short-term volatility.

For Chinese energy stocks, this means profit outlook pressures. The decline in the “Big Three” Hong Kong oil stocks reflects market concerns about weakening oil prices in the medium to long term. During this paradigm shift, understanding changes on the supply side is more important than tracking geopolitical risks themselves.