Good morning, traders…
Imagine a world with only a few major water reservoirs.
If someone were to say, “That reservoir might be blocked tomorrow” or “it might suddenly dump a metric ton of water into the system,” the price of water would change dramatically (depending on the outcome).
Well, that hypothetical just became real around one of the most sought-after commodities on the planet.
Over the weekend, the U.S. captured Nicolás Maduro and took control of Venezuela.
But while the headlines are focused on geopolitical implications, military intervention, and regime change…
The Smart Money is focused on oil.
Venezuela has some of the largest oil reserves in the world. But under Maduro, production collapsed. Foreign companies were driven out. Infrastructure deteriorated.
The country went from producing millions of barrels per day to a tiny fraction of that…
Now the U.S. controls the situation.
And that immediately changes the entire landscape of global oil markets.
Will the new government stabilize production? Will sanctions get lifted? Will U.S. companies rush back in to rebuild infrastructure? Or will the transition create chaos that shuts down exports completely?
Nobody knows. And when nobody knows what happens to a major oil-producing region, Smart Money traders don’t wait for answers.
They position for volatility.
My scanners started lighting up first thing on Monday morning, showing massive action in oil contracts.
The Smart Money Is Flowing Into These 2 Stocks…
Happy Birthday, Jackson!
First, I want to say Happy Birthday to my oldest son, Jackson, who turned 15 today.
To all the parents out there: cherish your time with your kids while they’re young. They grow up too fast!
Now, back to oil prices…
Why This Matters
Transportation, plastics, chemicals, fertilizers, shipping, and military logistics…
…all depend on oil.
There’s no substitute, and supply can’t magically increase if something goes wrong.
But oil prices are driven by fear, future expectations, and fragile supply.
And Venezuela represents a large, unstable, impossible-to-replace piece of that system.
Considering all of this uncertainty, oil traders woke up on Monday and asked themselves two questions…
Will Venezuelan Oil Stop Flowing?
Any of these factors can stop oil exports overnight, even without damage to wells:
- Military action.
- Political chaos.
- Sanctions.
- Port closures.
- Shipping insurance getting pulled.
If traders think oil might stop flowing, prices will rise.
Will Venezuelan Oil Flood The Market Later?
If the U.S. installs or supports a new government, traders then ask: Will sanctions be lifted? Will U.S. companies rebuild production? Will Venezuela eventually pump a lot more oil?
If traders think oil might flood the market later, prices will fall.
This is why oil prices can spike and dump on the same geopolitical story, depending on which future traders focus on.
But I think I know which question will take center stage…
The Answer Lies in the Risk Premium
Whenever oil-producing regions become unstable, prices rise (even if barrels haven’t literally stopped flowing yet).
This is called a risk premium.
Exporters charge extra for oil when something could go wrong. The more chaotic or unpredictable the situation, the higher the premium.
U.S. intervention in Venezuela increases geopolitical risk and adds uncertainty to shipping.
But where uncertainty in the major indexes usually leads to downside, geopolitical uncertainty around oil usually drives prices higher.
Oil just went from a slowly declining commodity (with a really boring chart) to what could become one of the juiciest trades of Q1…
Which Oil Stocks Are The Smart Money Betting On?
I’m deep in my scanners to see which oil stocks are getting huge Smart Money bets.
Chevron Corporation (NYSE: CVX) is the only remaining U.S. oil company in Venezuela. The others were driven out long ago by Chavez and Maduro. This gives Chevron a unique type of “first-mover” advantage in the region.
Contracts to Watch:
- Weeklies: January 9 $165, $167.50, and $170 calls
- Swing Trade: February 20 $170 calls
Halliburton Company (NYSE: HAL) builds the tools energy companies need to drill, explore, and frack. Every time the U.S. engages in oil-driven foreign intervention, drilling, construction, or regime change, Halliburton stands to benefit.
Contracts to Watch:
- Weeklies: January 9 $32, $32.50, and $34 calls
- Swing Trade: March 20 $35 calls
All of those contracts are getting enormous Smart Money volume this week.
This is why my scanners are so critical.
I don’t want to guess which contracts to buy … I want to buy the contracts owned by the Smart Money.
The same thing is happening this week in these oil names.
The Trade Plan
I’m not jumping into any of these oil trades yet. I want to see how the initial reaction plays out first.
If I do enter an oil trade, it will be because:
- The scanner confirmed the flow
- The chart confirmed the setup
- The risk/reward made sense
Want to know exactly when I make my moves?
There’s only one place to start.
Happy trading,
Ben Sturgill
*Past performance does not indicate future results