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Oil Advances for Third Day as Venezuela Muddles Market Dynamics

28 January, 2019, 05:52 | Author: Sara Gill
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Oil prices edged higher on Friday as political turmoil in Venezuela threatened to tighten crude supply, but concerns over surging US fuel stocks and global economic woes weighed on sentiment. USA crude oil exports over the past four weeks averaged about 2.6 million barrels per day, up by approximately 1.3 million barrels per day on a year-on-year basis.

West Texas Intermediate (WTI) crude for March delivery climbed US$0.56 to US$53.69 a barrel at the close of trading on the New York Mercantile Exchange.

The International Energy Agency estimates Venezuelan reserves at 303.2 billion barrels, "but much of its oil is extra heavy, which is costly to extract", an IEA report said.

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 fortress-like USA embassy on a Caracas hilltop may become a flashpoint after Maduro's order for American diplomats to evacuate was ignored. Every $1-per-barrel increase in costs would slice 8 percent off of PBF Energy Inc.'s earnings and 1 percent from Valero Energy Inc.'s, they wrote in a note to clients on Friday. OPEC member Venezuela is one of the world's largest oil producing countries, but its output has decreased from 2.4 million barrels per day in 2016 to a 70-year low of around 1.2 million bpd as the country has slipped into an economic crisis under Maduro's leadership.

"It's really the first quarter that's the big concern among investors right now", Matthew Blair, an analyst at Tudor Pickering Holt & Co., said Thursday in a phone interview.

"It will be costly for Venezuela but eventually they'll be able to sell that oil to Asia at a discount".


Mars traded at a $6.90 premium to US crude on Wednesday, a five-year high, according to Refinitiv Eikon data, as bidders came into the market to secure supplies through the second quarter, traders said.

Maduro responded by breaking relations with the United States.

Traders paid a close eye on US threat of sanctions on Venezuela, which would lead to a tighter market. The economic relationship between the two nations is being brought into focus as there may possibly be a United States embargo against Venezuelan oil. 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.

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.

And Venezuela relies on USA products to keep its oil industry afloat. "This would deal a further blow to USA refiners that rely on whatever Venezuelan oil is still available and as such would be short-term bullish".

"The road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian disaster", she said.

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