U.S. oil up 1% on Venezuela turmoil, but hefty stock build weighs

Andrew Cummings
January 26, 2019

Gasoline stockpiles rose by 4.1 million barrels last week, while distillate stockpiles edged down by 600,000 barrels, according to the EIA.

U.S. West Texas Intermediate (WTI) crude futures settled at $53.69 per barrel, up 56 cents, or 1.05 percent.

Venezuela now supplies around 480,000 barrels per day of crude oil to Gulf Coast refineries.

Oil closed higher for the third day in a row as a deal to reopen the USA government eased investor fears while political turmoil in Venezuela roiled one of the world's biggest suppliers of heavy crude.

Venezuela's opposition leader, Juan Guaido, declared himself interim president Wednesday, winning backing from Washington and some countries in Latin America, prompting socialist Nicolas Maduro, the country's leader since 2013, to cease diplomatic relations with the U.S.

Oil prices declined on Thursday on lingering concerns that slowing global economic growth may limit fuel demand and after a surprise build in USA crude inventories.

Mars traded at a $7.10 premium to USA crude on Thursday, a five-year high, according to Refinitiv Eikon data, as bidders came into the market to secure supplies through the second quarter, traders said.

Brent crude oil futures were at $60.86 a barrel at 1215 GMT, down $0.23 or 0.38%.

Also, oil production and exports from Venezuela could be hampered amidst a coup threat on the government.

The International Energy Agency said in September that the global oil supply reached 100 million barrels a day for the first time ever in August, boosted by rising production in the US and several OPEC nations.

Maduro stressed that Venezuela is ready to continue selling oil to the United States, noting, "We will continue selling everything that has to be sold ... if they want to buy oil, we will sell oil".

The U.S. government could lessen the blow by phasing in restrictions on Venezuelan oil imports in a way that mirrors the trend U.S. refineries have already always been adjusting to, said John Auers, executive vice president of the refining consultancy Turner, Mason & Company. 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. WCS prices jumped sharply after Alberta Premier Rachel Notley ordered a production cut of 325,000 b/d to drain the excess supply from the system in December.

The U.S. could end up having to import some of that heavy crude from the Middle East, adding transportation costs. Some processors anxious about restrictions experimented with alternatives a year ago before ultimately returning to Venezuelan crude.

“Forcing Venezuela into the spot market to dump prompt crude puts them in a corner.

With the US considering sanctions against Venezuelan crude, there's little doubt that Gulf Coast refiners would look north to Canada to fill the gap.

"With the USA now clearly taking sides with the opposition, changes might be in the making", said Tamas Varga, an analyst at PVM Oil Associates Ltd.in London. Also sustaining higher prices, supply concerns in Libya and Venezuela are set to persist for the time being, while current USA sanctions limiting Iranian oil exports also collaborate with the better sentiment.

"While Venezuela will be hard hit the first month, they will find some market for their crude", said Diego Moya Ocampos, principal Americas analyst in country risk at IHS Markit. However, this bullish view is eclipsed by the above mentioned possibility of a slowdown in the global economy and fears of a supply glut on the back of increasing U.S. oil production. The state-owned company owes China US$17-billion and is behind on its payment, so any effort to divert its exports to that market may not yield the company any revenue.

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