How Does Lower Oil Prices Benefit The Economy? LFG Daily - January 5th, 2026

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Lower Oil Prices: When Cheaper Energy Is a Feature, Not a Warning

Lower oil prices often get lumped into the same category as economic slowdowns. But that’s a mistake.

History shows that falling oil prices are usually bullish for the economy and financial markets—as long as they aren’t caused by collapsing demand from a recession. When oil moves lower due to increased supply, geopolitical clarity, or improved market access, it acts more like a tax cut than a red flag.

That’s exactly why recent developments around Venezuela matter.

The Key Distinction: Why Oil Is Falling Matters

There are two very different paths to lower oil prices:

1. Bad Lower Oil

   • Driven by demand destruction

   • Consumers and businesses pulling back

   • Recession fears justified

     
     

2. Good Lower Oil

   • Driven by increased supply or improved access

   • Energy costs fall while demand remains intact

   • Margins expand, consumers spend more, inflation cools

     
     

The market is currently pricing scenario #2, not #1.

Why Venezuela Action Is Quietly Bullish for Markets

1. It Removes a Long-Standing Geopolitical Overhang

For years, Venezuela has been a wild card—massive reserves locked behind sanctions, political instability, and uncertainty.

Any movement toward:

• Sanctions relief

• Clearer rules of engagement

• Re-entry into global energy markets

  
  

reduces geopolitical risk, which historically:

• Lifts risk appetite

• Supports higher equity multiples

• Benefits global markets broadly

  
  

Markets like clarity, even when outcomes take time.

2. Signals U.S. Strength and Strategic Flexibility

Engagement with Venezuela isn’t just about oil—it’s about leverage.

Potential sanctions relief:

• Signals U.S. geopolitical confidence

• Expands diplomatic and economic influence

• Helps stabilize energy markets without direct intervention

  
  

This backdrop tends to be supportive for emerging markets, cyclicals, and global trade-sensitive assets, not defensive positioning.

3. Opens the Door to Foreign Capital Over Time

Venezuela sits on some of the largest proven oil reserves in the world, but capital, expertise, and infrastructure have been absent.

Even gradual steps toward:

• Foreign investment

• Trade normalization

• Energy infrastructure rebuilding

  
  

introduce long-term supply potential, not overnight shocks.

Markets discount the future—not the headlines.

Lower Oil in the Medium Term: A Net Economic Positive

As Venezuelan barrels eventually come back online, several things happen:

• Global supply increases

• OPEC+ discipline becomes harder to maintain

• Energy price volatility moderates

  
  

Lower oil prices:

• Reduce transportation and manufacturing costs

• Act as a tailwind to consumer spending

• Ease inflation pressures without Fed intervention

  
  

That’s not recessionary—that’s growth-friendly.

The Market Takeaway

Lower oil prices should not automatically be feared.

When:

• Demand remains resilient

• Supply expands

• Geopolitical risk declines

  
  

Lower oil is a feature, not a bug.

It supports:

• Equity markets

• Corporate margins

• Consumer balance sheets

• Global growth expectations

  
  

As long as oil is falling for supply-side reasons—not demand collapse—it’s historically been a constructive backdrop for risk assets.

And right now, the Venezuela story fits squarely in that camp.

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Colin Symons, CIO Lloyd Financial Group

To start, I know financial news will be all atwitter about the US invading Venezuala. Most of the time, those sorts of actions have pretty short-lived impacts, as people game oil going up or down a bit, or buy some Chevron (CVX) on the news. First, I’m not going to suddenly pretend I’m a foreign relations expert. Second, by the time markets open, it should largely be priced in. I’m going to just focus on the usual, boring stuff that’s added value for me over the years.

We’ve been through quite a lot in the last two months or so on the liquidity front, but I believe we’ve finally crossed all the major hurdles facing us.

In mid-December, the Fed finally ended Quantitative Tightening (QT,) recognizing they had shrunk their balance sheet farther than the market could handle. We also have passed year-end bank derisking, where banks shrink their balance sheet for regulatory reporting purposes. Together, I think that greatly increases the odds of a very constructive stock market to start the year.

We’ve already seen some effect, with Fed buying modestly expanding their balance sheet (above,) helping to ease seasonal pressures and the effect of ongoing Treasury issuance. Additionally, banks’ year-end derisking tends to ease sharply once the regulatory reporting period passes. This year, we also get the bonus of Supplementary Leverage Ratio (SLR) adjustments, which will exclude certain Treasuries from leverage calculations. In theory, the SLR adjustments could potentially unlock trillions in new credit creation.

This liquidity boost isn’t going to last forever, but I think it greatly ups the odds that the start of the year is a strong one for risk assets. We have a Fed that is cutting rates, at least eventually, and an expansionary fiscal policy. The elements are there for upside, particularly if inflation data remains fairly tame.

To end the year, investors had become a bit cautious, which has been a reasonable stance. After all, year-end reporting requirements tend to shrink risk taking and the SLR shift hadn’t happened. Now, I think you can make a reasonable case those brakes are coming off, and the Fed will get back to providing liquidity on Monday.

I think we got a taste of that liquidity on Friday, with high beta names which had been getting pressured seeing a strong bid. That should last, as the Fed gets back to work on expanding the balance sheet and risk-taking capacity should increase. We’ll see what happens, but I think the potential for a powerful rally is in place.

Admittedly, and as usual, this isn’t starting out perfectly. SOFR rates were hit hard as the calendar flips. That’s common, but this was an unusually large move, indicating rate stresses are still there. That should go away this week, but we’ll see. There are also always unexpected concerns like the US invasion of Venezuela over the weekend. That looks like it won’t be an ongoing conflict, but we’ll see if that hits market sentiment. I continue to believe the most likely path from here is improving liquidity supporting a rally in risk assets, but we’ll see what the market says, this week.

Manufacturing PMI (less important than the one today) was 51.8, with new orders and production slowing slightly from the previous month.

The US invaded Venezuela to take Maduro to an American court, with oil volatile but flat on the news. Old Venezuela oil producer Chevron (CVX) is up 8% on the news. COP and XOM are also up for similar reasons. HAL and SLB are up 10% on the prospect of demand for oil services.

NY Governor Hochul agreed to allow no taxes on tips up to $25K.

DRAM producers Samsung and SK Hynix have quoted memory prices to cloud providers up as much as 70% over last quarter amidst strong demand.

ISM Manufacturing PMI, today.

What does it all mean? The AI trade is moving back to the forefront on a slew of good news.

Don’t leave your financial future up to chance. Let’s build a plan that gives you confidence today and peace of mind for tomorrow. Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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