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Venezuela Oil Woes Add Urgency to Canadian Pipeline, Rail Plans

28 January 2019

Oil prices edged higher on Friday as political turmoil in Venezuela threatened to tighten crude supply, but concerns over surging US fuel stocks and global economic woes weighed on sentiment.

According to the Weekly Petroleum Status Report released by EIA on Wednesday, U.S. crude oil imports averaged 7.5 million barrels per day last week, down by 319,000 barrels per day from the previous week, while crude oil exports averaged 3 million barrels per day last week, up by 901,000 barrels per day from the previous week.

"The breakdown in diplomatic relations was interpreted as upping the possibility of a USA sanction on Venezuelan oil that would likely force US refiners to seek alternative supplies at higher prices, hence the WTI gains", Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

U.S. President Donald Trump said Wednesday that the United States had recognized Venezuelan opposition leader Juan Guaido as the nation's "interim president", a move that came after Nicolas Maduro was inaugurated as president of the Latin American country earlier this month.

Global oil markets are still well supplied, however, thanks in part to a spike in US output.

"The big oil companies, the shale producers, will benefit a bit", said Michael Lynch, president of Strategic Energy & Economic Research Inc.

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“The oil market is partially pricing in the risk to Venezuela's crude production, which has been plummeting in recent years, ” Vandana Hari of Vanda Insights said. -China trade talks weighed on prices.

Global oil markets are still well supplied, however, thanks in part to surging output in the United States. A growth in oil supply and falling demand causes prices to slump.

Bloomberg television looked at Venezuela another way: when asked if a change of government would enable the country to get more rigs back on line and therefore cause crude prices to drop, Liam Denning, a Bloomberg Opinion columnist, pointed out that even if the sanctions weren't imposed and the country underwent a smooth transition to a new government, it would take a long time for oil production to fully recover.

Potential U.S. sanctions against Maduro's government or serious unrest in the country could cut the country's crude exports. She noted that a ban on exporting U.S. dilutents to dilute heavy Venezuelan oil could greatly impact the nation. If the Trump administration pulls the trigger on energy sanctions, those declines could balloon to several hundred thousand more barrels, says Helima Croft, global head of commodity strategy at RBC.

"Sanctions would make US Gulf Coast refiners the biggest loser", Rystad Energy analyst Paola Rodriguez-Masiu wrote in a report on Thursday.

Venezuela Oil Woes Add Urgency to Canadian Pipeline, Rail Plans