Oil climbs on Venezuelan crisis despite surging U.S. supply

Dwayne Harmon
January 28, 2019

Prices remain subdued, however, with benchmark Brent crude oil futures trading around $60.79 a barrel Thursday morning and West Texas Intermediate (WTI) at $52.33 a barrel.

Even before the most recent political upheaval, the US imported a record 4.06 million barrels of Canadian crude a day last week, while imports from Venezuela slipped 13 per cent to 523,000 barrels a day.

The EIA data is due out later on Thursday, after Wednesday's release by the American Petroleum Institute saying USA crude stocks rose by 6.6 million barrels in the latest week, versus expectations for a fall of 42,000 barrels.

Political upheaval in Venezuela has also been a flashpoint for markets.

The administration added to pressure on Maduro's regime on Wednesday by recognizing opposition leader Juan Guaido as the country's interim president.

A sudden escalation in long-burning tensions between the United States and Venezuela could have far-reaching ramifications in the oil market, where the Bolivarian Republic remains a significant player despite its plunging output.

In 2017, the most recent year that data was available, Venezuela accounted for about 6 percent of USA crude imports.

“As we shuffle into seasonal maintenance, it is no surprise to see refinery runs dropping, but this drop has been compounded by a big jump in imports to propel crude stocks higher, ” he said.

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"The potential is that the U.S.is starting to put things in motion and the risk for an acceleration in the decline in production from Venezuela is increasing", Petromatrix strategist Olivier Jakob said. The timelines for TransCanada Corp.'s Keystone XL and the Canadian government's Trans Mountain expansion - which would add a combined 1.42 million barrels of egress - are both farther out and less certain, due to legal and regulatory snags.

RBC Europe predicted that US sanctions could almost double projected output shortfalls from Venezuela.

Gasoline stockpiles rose by 4.1 million barrels last week, while distillate stockpiles edged down by 600,000 barrels, according to the EIA.

Venezuelan oil is predominantly heavy crude, which requires extensive refining. Even without new US sanctions, Venezuela's production - now about 1.2 million barrels a day - may lose a further 300,000 to 500,000 barrels a day, RBC Capital Markets estimates. That's because light oil yields more gasoline than diesel, so as fuel producers seek to ramp up diesel production, they are piling up on excess gasoline. Sanctions would likely accelerate those trends.

In the event of a change in government, global oil prices could rise in the short term, but decline as time goes on, analysts believe.

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".

The bearish sentiment appeared to outweigh the possibility that turmoil in Venezuela may lead to tighter global supply if the United States imposes sanctions on Venezuelan exports. “In the event that a reformist government comes to power, the road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian disaster.

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