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Venezuela’s chaos Can Spark Oil Price Increase

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  • Venezuela’s chaos Can Spark Oil Price Increase

Deepening turmoil in Venezuela could fuel a rise in oil prices, a feat the Organisation of the Petroleum Exporting Countries (OPEC) has been striving to achieve through oil production cuts.

According to MarketWatch report, the South American nation, home to the world’s largest oil reserves, voted to give President Nicolás Maduro’s government powers to redraft the constitution, sparking clashes between protesters and state security forces. The opposition charges the vote could mark the end of democracy in Venezuela.

What the chaos portends for the oil industry, the report said: “The “possibility of chaos” in the country is the “only true element that would change the dynamic for crude,” Tom Kloza, global head of energy analysis at Oil Price Information Service, said.

“If “Vendemonium,” as he dubbed it, comes to pass, it could lift West Texas Intermediate crude-oil prices up from their current trading range of roughly $42 to $53 a barrel, said Kloza.

WTI crude, the U.S. benchmark, traded just below $50 a barrel last week, contributing to a 8.7 per cent weekly gain fueled in part by data showing a fourth-straight weekly decline in U.S. crude inventories, as well as pledges by some OPEC members to curb exports.

But WTI crude and Brent, the global benchmark, still trade about eight per cent lower year to date, even as a production-cut agreement by OPEC members and other major non-cartel nations such as Russia, that began at the start of the year, has seen historically high compliance and has been extended through March of next year.

“For oil, there is “ongoing concern about stability as the opposition gains strength and the chance that the U.S. will ratchet up pressure by halting imports,” James Williams, energy economist at WTRG Economics told MarketWatch. Venezuela is among the top suppliers of crude to the U.S., though its production has declined since last year on the heels of civil unrest.

“Venezuela’s oil output has dropped over the last year. A long strike by Venezuelan national oil firm’s workers was to blame for the huge drop in 2003. The chaos intensified last week with the U.S. State Department ordering family members of U.S. embassy employees in Caracas to leave the country.

“If we are removing diplomats, it is certainly an indicator of the intent to embargo oil from Venezuela,” said Williams. The U.S. had placed sanctions last week on 13 high-ranking Venezuelan officials for alleged corruption, among other offences, according to The Wall Street Journal.

“If Maduro installs puppeteers who more or less make up new constitutional rules, it really puts an already beleaguered (U.S. President Donald Trump) administration in a tough spot,” said Kloza.

Still, if the Trump administration “tries to put financial handcuffs” on Venezuela’s state-owned Petróleos de Venezuela, SA, (PdVSA), “it might provide the catalyst for the oil market and for consumer gasoline prices to rise appreciably,” Kloza said.

And the impact could be far reaching, with “financial handcuffs or penalties” potentially signaling “incredible turbulence for Citgo,” he said.

Citgo Petroleum Corporation, the Venezuela-owned American refiner, employs thousands of U.S. citizens and is “instrumental in ensuring adequate supply of gasoline, diesel fuel and jet fuel,” said Kloza.

In Russia, integrated oil firm Rosneft, which is majority owned by the country’s government,” might ultimately gain a large ownership stake in Citgo should its parent company and country default,” he said.

Rosneft received 49.9 per cent of the equity in PdVSA unit Citgo late last year as collateral for a $1.5 billion loan to PdVSA. Reuters recently reported that Rosneft is in talks with PdVSA for a fuel-supply deal and stakes in Venezuela-based oil and natural-gas fields.

For now, traders can just “hope that Trump only target individuals, not oil” when it comes to sanctions, said Williams.He also warned that the market could see a reaction from the U.S. that is “more complex than a simple halt in imports.

Meanwhile, Kloza said that if Venezuelan crude continues to flow, there is “limited upside” for the oil market “despite the large inventory draws that have happened and will continue to happen for some time.”

“Without ‘Vendemonium,’ we’re destined to remain in a low-price oil environment into 2018 or later,” said Kloza.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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