Published: Mon, January 28, 2019
Money | By Arnold Ball

Oil prices climb as US threatens sanctions against Venezuela

Oil prices climb as US threatens sanctions against Venezuela

Potential U.S. sanctions on Venezuela's crude oil exports would cut off the nation from Gulf Coast refiners that are among its biggest customers, likely forcing it to send more crude to China, India or other Asian countries, traders said on Wednesday.

Geneva-based Petro-Logistics said on its website that Iranian crude and condensate exports in December "fell steeply" from November to less than 1 million barrels per day (bpd) due to US sanctions - lower than some other estimates.

Weighing on oil futures, USA crude inventories sharply rose by 8 million barrels last week, the Energy Information Administration said on Thursday, versus forecasts for a decline of 42,000 barrels. She noted that a ban on exporting United States dilutents to dilute heavy Venezuelan oil could greatly impact the nation.

Barclays on Thursday cut its 2019 Brent price forecasts, saying large US production may offset any short-term disruptions to Venezuelan supply due to possible USA sanctions.

Declining Venezuelan shipments have been underpinning demand for heavy Canadian crude for more than a year, even at the South American nation's own USA refineries.

The media outlet had added: "That estimate from the latest IMF World Economic Outlook is up from the forecast of 1 million percent the IMF made in July 2018 and more than a hundred times faster than its January estimate of 13,000 percent".

The United States is the world's top oil producer after output a year ago hit record highs, offsetting OPEC-led cuts to shore up prices.

"It's really the first quarter that's the big concern among investors right now", Matthew Blair, an analyst at Tudor Pickering Holt & Co., said Thursday in a phone interview.

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That could mean designating the Guaido government as the legitimate steward of Venezuela's assets, including US refineries owned by Citgo, the refining subsidiary of state-owned energy company Petróleos de Venezuela.

Prices of heavier USA grades like Mars Sour, an offshore medium US crude, and Heavy Louisiana Sweet crude have risen as buyers scramble for supply.

But concern about the supply of heavy crudes is apparent in the US physical market, where the price for Mars Sour WTC-MRS , a medium crude, shot to its highest since early 2011.

US energy firms this week increased the number of oil rigs operating for the first time this year.

Still, the long-term trend is a declining dependence on Venezuelan oil. To churn out gasoline, jet fuel and other products, refineries require a healthy dose of heavy crude.

The "NDTV" had reported: "The South American country's known reserves grew between 2009 and 2010 by 40 percent, compared with the stagnation of Saudi Arabia's reserves, which OPEC figures to be 264.52 billion barrels".

However, the rally has faltered amid shaky economic forecasts and record production of USA crude. Refineries operated at 92.9 percent of their operable capacity.

More broadly, the slide in USA oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown. Even if Maduro's government is replaced, "the road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian crisis", RBC analysts Helima Croft and Michael Tran wrote in a note.

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