The US Dollar started 2026 on a high note, with the Dollar Index (DXY) hitting a four-day peak of 98.796. The Trump administration is currently focused on removing Venezuelan President Nicolas Maduro, but the market’s reaction has been relatively calm. A key focus is the effect this situation might have on Oil prices and the market at large. Last night, Brent Oil prices dropped slightly to around USD60 per barrel. Over the years, Venezuela’s contribution to global Oil supply has decreased; it is now the 18th largest producer, producing about 1 million barrels per day.

Venezuelan Oil Reserves

In the 1970s, Venezuela produced around 3.5 million barrels of Oil each day. If a regime change occurs, there is optimism that Venezuela can tap into its large Oil reserves to enhance global supply. These reserves are the largest in the world, but extracting them is challenging due to their heaviness. The result of Venezuela’s political changes is still unpredictable. Acting President Delcy Rodriguez has invited the US to work together on development. Meanwhile, President Trump has warned of repercussions if Venezuela does not align with US interests, especially regarding Oil access. The US Dollar Index is starting the year strong, nearing the 98.80 mark. In the past, similar levels acted as resistance multiple times in 2025, which may indicate a potential pullback. Traders might consider buying short-dated put options on the dollar to hedge against a sudden market reversal due to rising geopolitical tensions.

Market Reactions in Energy Sector

The energy markets have reacted mildly, with Brent crude hovering around $60 a barrel. This price is particularly low, especially when compared to the volatility we saw in the second half of 2025 when prices spiked above $85. This indicates that the market is currently anticipating a smooth political transition in Venezuela, overlooking the risk of immediate supply disruptions. Given the potential chaos of a forced regime change, this complacency offers an opportunity in the options market. Buying out-of-the-money call options on Brent or WTI futures could be a smart precaution against a sudden price jump if the political situation worsens. The cost for this type of insurance is relatively low since implied volatility in the energy sector has decreased with the recent price dip. Aside from energy, the main risk is an unexpected escalation that could affect global stocks. The market’s fear indicator, the VIX, is currently low at around 14, well below its historical average of roughly 19.5, suggesting widespread complacency. We may want to think about purchasing VIX call options or S&P 500 put options as a cost-effective way to safeguard our broader portfolios. The long-term chance of Venezuelan production rising back to over 3 million barrels per day is impacting future prices. However, this is likely years away and hinges on a successful and stable regime change, which is still uncertain. This possible future supply boost comes while OPEC+ has been diligent in maintaining production levels throughout 2025 to keep prices stable. Create your live VT Markets account and start trading now.

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