Oil prices gained more than 2 per cent on Tuesday after the United States imposed sanctions on state-owned Venezuelan oil company PDVSA, a move likely to reduce the OPEC member’s crude exports and relieve some global oversupply worries.
International Brent crude oil futures were up $1.39 to settle at $61.32 a barrel, a 2.32 per cent rise, while U.S. West Texas Intermediate (WTI) crude futures increased $1.32, or 2.54 per cent, to settle at $53.31 a barrel.
Venezuela is among the world’s largest heavy crude oil producers, and the United States has been its biggest client, taking about half the country’s export volumes.
The Trump administration’s restrictions on Venezuelan crude, aimed at driving President Nicolas Maduro from power, stop short of banning U.S. companies from buying oil from the Latin American country. However, proceeds from such sales will be put in a “blocked account” that should deter PDVSA from shipping crude to the United States.
“Today’s price advance looked like a delayed reaction to yesterday’s Venezuelan headlines as traders may have had second thoughts about the impact on domestic oil supplies,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
Additionally, “possibilities that some Gulf Coast refiners may need to pay up for alternative stocks from such places such as Saudi Arabia that has already suggested that they will be steering cargoes away from the U.S.,” he wrote.
Venezuela’s exports fell to little more than 1 million barrels per day (bpd.) in 2018 from 1.6 million bpd. in 2017, according to Refinitiv ship-tracking data and trade sources.
Petromatrix estimated that Venezuelan exports will drop by about 500,000 barrels per day under current conditions.
Venezuela is a member of the Organization of the Petroleum Exporting Countries, which is implementing a supply cut deal to support prices.
Russia, OPEC’s biggest non-member ally, and China have both publicly denounced the U.S. sanctions.
Meanwhile, Libya’s biggest oil field, El Sharara, will remain shut until departure of an armed group occupying the site, the head of National Oil Corp said.
Despite some tightening, global oil supply remains high, largely because of a more than 2 million bpd. increase in U.S. crude oil production <C-OUT-T-EIA> last year to a record 11.9 million bpd.
U.S. crude stockpiles rose by 1.1 million barrels last week compared with analysts’ expectations for an increase of 3.2 million barrels, industry group the American Petroleum Institute said on Tuesday after prices settled.
The U.S. Energy Information Administration’s crude and gasoline inventory data will be released on Wednesday.
Some in the oil industry also worry that crude demand could stutter if the trade war between Washington and Beijing slows global economic growth.
In China, a top oil importer, signs of a slowdown have emerged. Activity in its vast manufacturing sector is expected to shrink for the second straight month in January, a Reuters poll showed.