Oil Climbs on Venezuelan Crisis Despite Surging U.S. Supply

Oil Climbs on Venezuelan Crisis Despite Surging U.S. Supply

Oil Climbs on Venezuelan Crisis Despite Surging U.S. Supply

Oil futures split paths on Thursday, with USA prices settling higher and the global benchmark logging a slight loss as traders reacted to a weekly surge in US crude stockpiles and the possibility of US sanctions on Venezuelan crude amid intensifying political tensions in the South American nation. Even if the US doesn't proceed with 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 LLC estimates.

US crude oil inventories went up by 8 million barrels in the week to January 18, the Energy Information Administration said in its latest weekly petroleum status report. But that's all expected to change this year as gasoline stockpiles surge, and a shortage of heavy crude from Venezuela wouldn't make refiners' lot any easier.

Oil prices fell on Monday after USA energy firms added rigs for the first time this year in a sign that crude production there will rise further. US crude inventories had posted declines in each of the previous two weeks.

The sanctions could put additional strain on global supplies of certain crude grades.

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

But McMonigle, now senior energy policy analyst at Hedgeye Potomac Research, believes Trump is very likely to impose sanctions.

Venezuela is very reliant on the USA for its oil revenue. Venezuela holds the group's rotating presidency this year, which means the nation's oil minister and PDVSA president Manuel Quevedo is OPEC's sitting president for 2019. A growth in oil supply and falling demand causes prices to slump.

With the USA considering sanctions against Venezuelan crude, there's little doubt that Gulf Coast refiners would look north to Canada to fill the gap.

The oil-sands industry has been ramping up shipments of crude by rail at a breakneck pace, with individual producers striking deals to load more oil on trains and Alberta's government buying rail cars to increase capacity. It is frequently blended with lighter crudes to give refiners higher-value products.

At 445 million barrels, USA crude oil inventories were about 9 percent above the five-year average for this time of year, according to the Weekly Petroleum Status Report by the EIA.

The ongoing OPEC+ agreement to curb oil output remains the nearly exclusive source of support for prices. Gulf Coast refineries depended on Venezuelan heavy crude for about a quarter of its imports, according to data from the EIA.

And Venezuela relies on U.S. products to keep its oil industry afloat.

The biggest US refiners are expected to report strong fourth-quarter earnings thanks to profits from diesel processing in a strong USA economy, as well as a drop of about 40 percent in crude prices. “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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