Halliburton, hedge funds and Chevron: Big winners from Trump's vow to 'rule' Venezuela

US energy companies and several hedge funds were handsomely rewarded when markets opened on Monday after news of the US attack on Venezuela and abduction of President Nicolas Maduro over the weekend. 

The MSCI US Energy index, which tracks a basket of American stocks with exposure to the energy industry, was trading up 2.8 percent on Monday, widely outperforming gains in the broader S&P 500 and other global energy stocks.

The rally was an early reflection of investors' bets that US multinationals and investors stand to reap outsized gains from President Donald Trump’s vow to “run” Venezuela, a South American country home to 17 percent of global crude reserves that has been under devastating US sanctions. 

Chevron, the only US energy company operating in Venezuela under a special licence provided by the Trump administration, led the gains among oil producers with its share price trading up about six percent. ConocoPhillips was trading up 3.3 percent, and Exxon Mobil was up 2.4 percent.

Meanwhile, Halliburton, a US company that services oil fields, soared 10 percent.

The rally underscores that investor confidence goes beyond US oil producers standing to gain from the removal of Maduro, but rather that tens of billions of dollars are likely to pour into the American companies providing maintenance, parts, and services to them, as the US pivots from sanctioning Venezuela’s oil industry to exploiting it.

US energy companies dominated Venezuela’s oil industry three decades ago, but lost their lock on it when Hugo Chavez was elected in 1998.

Around 2007, Chavez partly nationalised the country’s oil industry, leading to an exodus of US companies. They have spent years trying to recoup their losses.

Opec to face 'serious competition'

The gains in US energy companies stood in stark contrast to their European peers, which were largely flat amid a broad rally in US stocks. 

Two major British multinationals, BP and Shell, were up half a percent and down half a percent, respectively. Aramco, the Saudi state-owned oil company, was also trading down slightly on the kingdom’s market.

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The US’s abduction of Maduro comes as energy analysts have warned of a glut of oil hitting a market already defined by low prices.

Saul Kavonic, an energy markets expert at MST Financial, said on a podcast that if Trump follows through on his pledge to unleash Venezuelan oil, countries that make up the energy alliance Opec, led by Russia and Saudi Arabia, are going to face “serious competition”.

Venezuela produces just under one percent of global oil supply, a “very significant” number that “could double or triple” in the coming years, "if investment were to return to Venezuela”, Kavonic said.

He said the market was balancing between expectations of “near-term disruption” to output amid concerns Venezuela descends into instability, with the prospect of “more supply in the medium term”.

Brent, the international benchmark, was trading up 1.61 percent on Monday afternoon at $61.72 per barrel.

Besides energy companies, another under-the-radar winner from the US’s return to “gun-boat diplomacy” in Venezuela was hedge funds and asset managers holding the sanctioned country’s debt.

The hedge funds holding Venezuela's debt

Venezuela is estimated to have around $150bn in debt, including its state-owned oil company PDVSA.

Caracas defaulted on its debt in 2017, and bond prices collapsed in 2019 when the US sanctioned PDVSA’s oil sales. Roughly 20 percent of that debt is owed to China and Russia, who supported Maduro’s government.

Venezuelan bonds were selling at about 31 cents on the dollar just before the US abducted Maduro. The price shot up to 41 cents on Monday, but had been rallying throughout the year from a low of 16 cents, as Trump deployed the US military to the Caribbean.

For investors holding the country’s bonds, that means there is a greater chance the US will assist Venezuela in restructuring its debt. If Venezuela’s oil industry comes back online, investors holding its bonds are primed to benefit from substantial interest payments. The bonds could appreciate further in value, experts say.

London-headquartered Broad Reach Investments and German asset manager Allianz Global Investors hold Venezuelan debt, the Financial Times reported. Elliot Management, a US investment firm that won a US legal battle to take control of an oil refinery previously controlled by PDVSA, could also benefit.

Trump said that Maduro's vice president, Delcy Rodriguez, who became the country's de facto leader on Saturday, said she would obey the US, effectively allowing the US to “rule” Venezuela. Rodriguez initially took a confrontational tone against Trump on Saturday after the abduction, but has since toned down her rhetoric.

On Sunday, Trump threatened Rodriguez with a fate worse than Maduro's and said she could only remain in power as long as she did what the US wants.

In a statement hours later on Sunday, Rodriguez invited the US to "work together on an agenda of cooperation".