Oil prices rise 1 percent as U.S. threatens sanctions against Venezuela

Muriel Colon
January 28, 2019

Oil on Friday closed higher for the third day in a row as a deal to reopen the United States government eased investor fears while political turmoil in Venezuela roiled one of the world's biggest suppliers of heavy crude.

Crude inventories rose by 8 million barrels.

West Texas Intermediate crude for March delivery gained 51 cents, or 1 percent, to $53.64 a barrel on the New York Mercantile Exchange as of 12:25 p.m.

Venezuelan oil is predominantly heavy crude, which requires extensive refining, and as such, is frequently blended with lighter crudes to give refiners higher-value products.

President Donald Trump's recognition of Venezuela's political opposition, along with the threat of sanctions on oil exports, is heightening the risk that the turmoil will hit the country's crude production.

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".

Global oil markets are facing an uncertain year with slowing global growth driving less global demand for oil while the supply picture looks unclear with production cuts by OPEC and Russian Federation potentially counteracted by the growth in US shale oil output.

Still, some analysts said the possibility of immediate sanctions were unlikely.

Venezuelan output has been hampered by chronic under investment by the nationalized oil company Petroleos de Venezuela SA (PdVSA).

The oil executive also underscored "difficult access to water, and electricity" in Venezuela.

Global oil markets are still well supplied thanks in part to a spike in United States output.

The U.S. government could lessen the blow by phasing in restrictions on Venezuelan oil imports in a way that mirrors the trend U.S. refineries have already always been adjusting to, said John Auers, executive vice president of the refining consultancy Turner, Mason & Company.

But supply is tighter for heavy crude oil, which is what the USA imports from Venezuela.

Trump has been a wild card for the oil market for the past year. Production of heavy crude in Mexico has been declining, and although there is a strong supply in Canada, there are challenges to getting that crude to the Gulf Coast refineries.

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.

The biggest USA importers of Venezuelan crude previous year were Citgo, Valero and Chevron, according to Rystad Energy.

Other industries that rely heavily on oil may feel impacts. Gulf Coast refiners can't operate on U.S. shale oil alone. 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", Tran and fellow RBC analyst Helima Croft wrote in a note.

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