Published: Mon, January 28, 2019
Markets | By Erika Turner

Oil up on Venezuela turmoil despite surging USA supply

Oil up on Venezuela turmoil despite surging USA supply

Political risks have been sharply in focus for oil markets although much-discussed US sanctions on Iran, imposed last November, failed to have that much of an effect on global supply as a handful of waivers were granted to oil importing countries, like Japan and India, allowing them to continue to buy oil from Iran.

The latest API data released showed that the U.S. crude inventories increased 6.6 million barrels, compared with analysts' expectations for a decrease of 42,000 barrels, Reuters reports.

More broadly, the slide in US oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown.

The diplomatic relationship between the United States and Venezuela is in shambles - and it hit a new low this week.

US crude oil production remained near a record high level of 11.9 million barrels per day for the week ending January 18, EIA data showed on Thursday.

However, global oil markets are still well supplied, mainly attributed to surging output in the United States, where crude production rose by more than 2 million barrels per day previous year to a record 11.9 million bpd. That's because light oil yields more gasoline than diesel, so as fuel producers seek to ramp up diesel production, they are piling up on excess gasoline.

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RBC Europe pointed out that "Venezuelan production will decline by an additional 300,000-500,000 barrels per day [bpd] this year, but such punitive measures could expand that outage by several hundred thousand barrels".

Analysts said tough USA penalties on Venezuela's oil industry would be bullish for prices.

Concerns about an unexpected rise in US crude inventories reported on Wednesday countered gains driven by the possibility of USA sanctions on Venezuela's oil industry. Still, as the US 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.

Analysts estimate it costs about US$20 per barrel to ship Canadian oil by rail to markets on the U.S. Gulf Coast, so discounts that are lower than that make the option less attractive.

But McMonigle, now senior energy policy analyst at Hedgeye Potomac Research, believes Trump is very likely to impose sanctions. She noted that a ban on exporting USA dilutents to dilute heavy Venezuelan oil could greatly impact the nation.

Any sanctions would come just as the global market for heavy crude is tightening. [API/] The U.S. Energy Information Administration reports official figures later on Thursday. A report from the American Petroleum Institute on Thursday said that the US has surplus gasoline stockpiles that "could approach burdensome levels" and force gas prices down further.

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