Venezuela tensions cause concerns about oil market

Venezuela tensions cause concerns about oil market

Venezuela tensions cause concerns about oil market

Oil fell on Thursday as concern over the global economy reasserted itself, reversing earlier price gains made on the potential for US sanctions on Venezuela.

The West Texas Intermediate for March delivery climbed 51 USA cents to settle at 53.13 dollars a barrel on the New York Mercantile Exchange, while Brent crude for March delivery declined 5 cents to close at 61.09 dollars a barrel on the London ICE Futures Exchange.

On Wednesday, U.S. President Donald Trump said the U.S. officially recognizes opposition leader Juan Guaido as the interim president of Venezuela after Guaido proclaimed himself president earlier in the day. Shortly after President Donald Trump recognized Guaido, Venezuelan President Nicolas Maduro severed relations with the United States and gave US diplomatic personnel 72 hours to leave the country.

Weighing on oil futures, US 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. Meanwhile, other forecasts, from the IEA and OPEC, also see US oil leading the rise in supply this year, but they also see global demand stable at 1.3 million and 1.4 million bpd, respectively, a slowdown from 2018 but not a too significant one.

However, the rally has faltered amid shaky economic forecasts and record production of United States crude.

"The oil market is partially pricing in the risk to Venezuela's crude production, which has been plummeting in recent years", Vandana Hari of Vanda Insights said.

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Meanwhile, markets digest the latest reports of potential U.S. sanctions on Venezuela's crude oil exports, which could make the oil markets tighter, with the OPEC output cuts already underway. It has also held off on blocking exports of US -origin diluents, which Venezuela needs to dilute its heavy oil.

The No Oil Producing and Exporting Cartels Act, or NOPEC, is a congressional bill that seeks to apply US antitrust laws to OPEC to prevent the group from coordinating production to influence oil prices.

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.

Any sanctions would come just as the global market for heavy crude is tightening.

Analysts said tough U.S. penalties on Venezuela's oil industry would be bullish for prices.

The Latin American nation could see crude production drop by one-third this year, analysts at Fitch Solutions said on Friday. [API/] The U.S. Energy Information Administration reports official figures later on Thursday. 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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