Over the coming weeks, energy markets will continue to adjust positioning in response to the U.S. involvement in Venezuelan oil. How equity valuations adjust as investors begin to factor in a different long-term outlook for the world's largest constrained reserve oil bases will be one of the biggest trends to watch in the market.

This shift does not necessarily imply an immediate increase in production. Venezuela's oil infrastructure remains corroded after years of underinvestment and operational decline. That type of infrastructural improvement will take time, and it could take years instead of months. What changes sooner is the increased confidence that Venezuelan reserves could eventually re-enter global markets under U.S. oversight. Markets tend to factor in and reprice expectations well before the barrels are moved, and it appears this dynamic is already starting to show.

Even with U.S oversight, many factors will help determine how quickly the oil can be distributed. Restoring Venezuelan oil production will require sustained capital investment and regulation clarity. While there is increased optimism in the energy sector because of US involvement, uncertainty on the execution of the distribution itself acts as a ceiling on oil price expectations.

Looking Forward

As we look forward, markets typically care about rate of change, and Venezuelan oil production, as mentioned earlier, is reliant on primarily infrastructure improvements, and increased funding. As a result, oil prices may face a somewhat unpredictable future. With that being said, a stable oil control environment can still be very supportive for energy equities.

For years, energy stocks traded with elevated risk due to geopolitical and policy factors. U.S. oversight of Venezuelan oil reduces uncertainty around those supply disruptions. With this uncertainty minimized, energy stocks can rise because investors are willing to pay higher confidence for more predictable cash flows.

Though only a small sample size, energy stock prices have so far reacted positively to the news of US involvement in Venezuela. Energy stocks have mostly traded higher in the week since the US involvement began, with major companies like Chevron and Exxon trading 3% and 2% higher respectively.

Our Take

Uncertainty is typically the biggest contributor to volatility in the market. With a large portion of the geopolitical uncertainty removed, this most likely will act as a catalyst moving forward to drive positive momentum for the energy sector. As clarity improves in other areas, specifically with how the oil will be manufactured and managed, that positive momentum should continue to carry. Energy is no longer being seen as a scarce resource, and this shift towards U.S involvement will likely benefit the most robust companies and operators in the coming months and years.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.