Energy stocks led gains on the S&P 500 today, driven largely by speculation around Venezuelan oil assets. Several companies with exposure to Venezuela saw significant share price increases amid hopes that Venezuelan oil production could be restored and US firms might regain access to these resources.

The nine biggest winners were:

– Schlumberger (SLB): +11.97%
– Valero Energy (VLO): +10.74%
– Halliburton (HAL): +11.18%
– Phillips 66 (PSX): +7.83%
– Marathon Petroleum (MPC): +7.08%
– Chevron (CVX): +5.81%
– Baker Hughes (BKR): +5.73%
– ConocoPhillips (COP): +3.96%
– Exxon Mobil (XOM): +2.59%

Collectively, these companies gained approximately $62.8 billion in market capitalisation in a single day, highlighting the scale of investor enthusiasm. A notable rally was also observed on Friday.

However, forex traders should exercise caution. The Venezuelan oil sector faces significant challenges. Production infrastructure that once supported 3 million barrels per day has deteriorated to less than 1 million barrels per day. The oil reserves are located in mountainous regions, complicating extraction efforts. Rebuilding the infrastructure—covering extraction, transportation, upgrading, and export facilities—could require investments on the order of $500 billion. Moreover, Venezuela’s political environment is unlikely to be immediately favourable to US companies.

Given these obstacles, it is doubtful that the necessary capital will be forthcoming in the near term, although minor opportunities could arise. Investors may currently be displaying irrational exuberance, which could fade in the coming days. Unlike shale oil wells, which offer relatively quick paybacks, Venezuelan oil development involves mega-projects that take nearly a decade to begin producing, with returns spread across decades.

Meanwhile, Canadian oilsands companies are underperforming, despite Canada’s long-term political stability and more accessible oil reserves that are lighter and contain fewer heavy metals compared to Venezuelan oilsands. From an investment perspective, Canada remains a more attractive and less risky option.

In summary, the recent surge in Venezuelan-related energy stocks is likely to be temporary and may reverse as the complexities of the Venezuelan oil sector become more apparent.

Original Source: Adam Button of investinglive.com