Concern about disruption due to sanctions lifts oil

Singapore — Oil prices rose on Wednesday as concerns about supply disruptions following US sanctions on Venezuela’s oil industry outweighed downward pressure from a darkening outlook for the global economy.

US West Texas Intermediate (WTI) crude futures were at $53.54 a barrel at 4.55am GMT, up 23c, or 0.4%, above their last settlement.

International Brent crude oil futures rose 37c, or 0.6%, to $61.69 a barrel.

The gains followed a 2% price jump in the previous session, when markets first digested the US sanctions on Venezuela’s oil exports.

Washington on Monday announced export sanctions against state-owned oil firm Petroleos de Venezuela SA (PDVSA), limiting transactions between US companies that do business with Venezuela through purchases of crude oil and sales of refined products.

“The sanctions so far have been mostly disruptive for refiners on the US Gulf Coast, who are being forced to seek alternative heavy crude supplies, and have stepped up purchases from Canada,” said Vandana Hari of Vanda Insights, an energy consultancy.

She said, however, that Canadian oil exports would be “constrained by pipeline capacity bottlenecks”.

The sanctions aim to freeze sale proceeds from PDVSA’s exports of about 500,000 barrels a day of crude oil to the US.

Although the move pushed up oil prices, markets appeared relatively relaxed as the sanctions only affect Venezuelan supply to the US.

“The [Venezuelan] export volumes will not be eliminated from the market, but rather rerouted to other countries,” said Paola Rodriguez-Masiu, an analyst at consultancy Rystad Energy.

With the US dropping out as a customer for Venezuelan oil, she added that “China and India … will be able to pick up these oil volumes at great discounts”.

Despite this, some analysts said that non-US oil trading firms with operations in the US may still avoid dealing with Venezuelan oil.

The Schork Report, a daily oil and gas trading publication, said on Wednesday that many “international oil traders … have significant trading operations in the US.… At least in the short term, these traders will undoubtedly quit buying from Venezuela until such a time that they are assured that they are not running afoul of US sanctions.”

Trade talks

Other analysts also pointed to economic weakness as countering supply-side efforts to tighten the market such as the voluntary supply restraint by Opec.

“Pulling in the opposite [oil price] direction are heightened concerns about global growth, particularly that of China,” said Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank.

Global economic growth and fuel consumption are expected to slow this year amid a trade dispute between the US and China, the world’s two biggest economies.

Officials from Washington and Beijing are set to launch a new round of trade talks on Wednesday aimed at resolving their disputes amid which both sides have slapped hefty import tariffs on each other’s goods.

Reuters