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Oil Extends Gain After Rising Most in a Week on Venezuela Crisis


Jan 30, 2019, by Sharon Cho and Grant Smith
(Bloomberg)

Oil rises in New York after jumping the most in more than a week on concerns that U.S. sanctions on Venezuela will pose significant market disruption.

West Texas Intermediate futures rose 0.8 percent after climbing 2.5 percent on Tuesday. Venezuela is considering declaring force majeure with the U.S., a signal it may halt shipments, after the White House effectively banned American companies from purchasing its crude. A ban would mean that the 500,000 barrels shipped to the U.S. every day by the OPEC member would need to be re-directed elsewhere, Societe Generale SA said.

Oil is trading in its tightest range in four months as the Organization of Petroleum Exporting Countries and its allies trim output to fight a global glut driven by record U.S. production. The crisis in Venezuela has so far had only a limited impact on prices as it doesn’t change the overall supply and demand picture. Restoring the country’s output could take years, according to Jeff Currie, head of commodities research at Goldman Sachs Group Inc.

“Geopolitics have returned with a bang,” said Stephen Brennock, an analyst at PVM Oil Asscociates Ltd. in London. “This latest attempt to tighten the financial noose on embattled President Maduro will further cement Venezuela’s supply outlook to the downside.”

West Texas Intermediate crude for March delivery rose 40 cents to $53.71 a barrel on the New York Mercantile Exchange at 11:02 a.m. in London. The contract climbed $1.32, or 2.5 percent, to close at $53.31 a barrel on Tuesday, the biggest advance since Jan. 18.

Brent for March settlement was 51 cents higher at $61.84 a barrel on the London-based ICE Futures Europe exchange. The contract increased $1.39 to $61.32 in the previous session. The global benchmark crude was at a $8.8 premium to WTI.

Force Majeure

Investors are waiting to see how Venezuela responds to the latest American sanctions on Venezuela. If Caracas decides to declare force majeure on its crude exports to the U.S., almost 12 million barrels could be affected next month, according to a loading program seen by Bloomberg. Force majeure protects a party from liability if it can’t fulfil a contract for reasons beyond its control.

Traders are also waiting for any signs of progress in negotiations between the U.S. and China to resolve a trade dispute.

The U.S. and China sit down in Washington on Wednesday for two days of high-level discussions after Treasury Secretary Steven Mnuchin told the Fox Business Network that he expected “significant progress” in the talks.

The two sides are trying to resolve their trade differences before a March 1 deadline, when American tariffs on $200 billion of Chinese imports will increase to 25 percent from 10 percent. The talks come in the wake of lower-level discussions this month in Beijing, and after a period of market turmoil that has left both governments eager to publicly claim progress to calm investors’ nerves.

Other oil-market news: The American Petroleum Institute reported a 1-million-barrel increase in nationwide crude inventories, while a Bloomberg survey estimated a 3.15-million-barrel gain ahead of government data Wednesday. The U.S. is considering tapping the nation’s emergency reserves while a firm decision hasn’t been made yet, Reuters reported, citing a government official.  Exxon Mobil Corp. reached a final investment decision to expand a Texas oil refinery by more than 65 percent as surging shale oil production from the Permian Basin creates an abundance of light, low-sulfur crude. Libya’s state-run National Oil Corp. wants to have control over the security of its oil fields to ensure production remains stable, the company’s chairman Mustafa Sanalla said in London.



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