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Oil Steadies Near $53 as Venezuela Crisis Assessed With Caution


Jan 25, 2019, by Grant Smith and Javier Blas
(Bloomberg)

Oil steadied near $53 a barrel as traders assessed whether an escalating crisis in Venezuela will reduce already-depleted exports from the OPEC member.

Futures were little changed in New York. 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. Still, as the U.S. hasn’t yet approved any new punitive measures and President Nicolas Maduro’s hold on power remains stable for now, prices remain headed for a weekly loss.

The recent development in Venezuela “doesn’t really affect global balances,” Huw Jenkins, vice chairman of BTG Pactual SA, said in a Bloomberg television interview in Davos, Switzerland. “People had largely expected to see this continual decline in Venezuelan production,” because its state oil company was already in such bad shape, he said.

Crude had already posted a strong start to the year before the flare-up in Venezuela, having gained around 25 percent from the low reached in late December as the Organization of Petroleum Exporting Countries and its allies cut output. But the rally has eased on fears that weakening global growth, and an exacerbation of China’s slowdown amid a trade conflict with the U.S., will curb oil demand.

West Texas Intermediate crude for March delivery slipped 15 cents to $52.98 a barrel on the New York Mercantile Exchange as of 12:52 p.m. London time. It added as much as 81 cents earlier and is down 1.6 percent this week.

Brent for March settlement advanced 35 cents to $60.74 a barrel on the London-based ICE Futures Europe exchange, and traded at a $7.78 premium to WTI. The global benchmark crude has dropped 2 percent over the week.

While the U.S. shale boom has shown some signs of slowing, it’s still keeping American supply abundant. U.S. crude stockpiles rose the most since November last week and gasoline inventories climbed to a record, government data show.

Venezuela Risk

A major disruption in Venezuela could be a game-changer.

The Latin American nation has already seen its output drop 50 percent in five years, to the lowest in more than a decade, as a spiraling economic crisis takes its toll on oil infrastructure and workers. Even if the U.S. doesn’t proceed with sanctions, Venezuela’s production — currently about 1.2 million barrels a day — may lose a further 300,000 to 500,000 barrels a day, RBC Capital Markets LLC estimates.

Internal conflict could result in a much bigger and longer-lasting disruption. 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,” RBC analysts Helima Croft and Michael Tran wrote in a note.

Venezuela is a “big unknown,” Marco Dunand, chief executive officer of commodities trader Mercuria Energy Group Ltd., said in an interview at the World Economic Forum in Davos, Switzerland. “Venezuela could be a short-term bullish factor, but in the long term it could turn bearish if there’s a government change. Over time, we can see oil production increasing.”

Other oil-market news: U.S. Secretary of State Michael Pompeo ordered all non-emergency U.S. government employees to leave Venezuela because of increased danger to Americans after Trump recognized Juan Guaido as the country’s leader.Venezuela’s top Socialist Party official threatened to shut off electricity to the U.S. embassy in the South American nation. Libya’s oil-exporting ports are shut temporarily due to bad weather, according to a person familiar with the situation.



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