Oil prices mixed amid Venezuela turmoil, record USA stockpiles

BC-Venezuela’s-in-Crisis The-Oil-Market-Doesn’t-Care

BC-Venezuela’s-in-Crisis The-Oil-Market-Doesn’t-Care

The theme throughout the week was the weakening global economy which translates into lower demand for crude oil.

Oil sanctions would deepen the economic chaos in Venezuela, which relies on oil exports for 90% of its revenue. Here's a look at how such a move might affect both countries. Venezuela, owner of the world's biggest oil reserves, could see crude production drop by a thirdthis year, analysts at Fitch Solutions said Friday.

US crude oil inventories went up by 8 million barrels in the week to January 18, the Energy Information Administration said in its latest weekly petroleum status report.

"It's a function of people keeping an eye on supply concerns out of Venezuela", said Marshall Steeves, energy markets analyst at Informa Economics IG in NY.

Oil prices fell on Monday after USA energy firms added rigs for the first time this year in a sign that crude production there will rise further.

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 holds the group's rotating presidency this year, which means the nation's oil minister and PDVSA president Manuel Quevedo is OPEC's sitting president for 2019. Venezuela's GDP has plunged by 37% between 2012 and 2017, according to the International Monetary Fund.

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.

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. The threat to reduce supplies supported futures prices.

According to EIA, U.S. crude oil refinery inputs averaged 17.0 million barrels per day last week, 174,000 barrels per day less than the previous week's average.

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USA refineries that depend on Venezuela's heavy crude would have even more trouble securing supplies as Canadian and Mexican crudes are often not as discounted and are limited in availability.

With Iran already crippled by USA sanctions, a drop in Venezuelan exports could squeeze global supply further. It is frequently blended with lighter crudes to give refiners higher-value products.

IHS Markit Vice Chairman Daniel Yergin on the state of the oil market. Refiners have been focused on benefiting from better demand for diesel in a strong US economy. They'll have to find heavy crude elsewhere. Valero and Citgo are among the largest importers of Venezuelan crude.

Those differentials have narrowed since the government of Alberta announced last month it would impose crude oil production curtailments of 325,000 bpd starting January 1.

US Baker Hughes will publish its oil rig count later in the day. Venezuela's crude is so heavy it must be blended with naphtha, a liquid hydrocarbon mixture used to dilute oil so that it can be transported. If the U.S. stops importing oil from Venezuela, it would devastate the nation that is already economically disadvantaged, according to Risa Grais-Targow, director for Latin America at risk consultancy Eurasia Group.

Other industries that rely heavily on oil may feel impacts. Sanctions would likely accelerate those trends.

Venezuelan output has been hampered by chronic under investment by the nationalized oil company Petroleos de Venezuela SA (PdVSA). Gulf Coast refiners can't operate on United States shale oil alone. That's because Venezuela's oil shipments to China and Russian Federation are usually taken as repayment for billions of dollars in debts.

'Most of the cash that the Venezuelan government gets comes from the USA market, so that means they will have to figure out how to ask the Chinese to get some cash back, because otherwise they will be starved for cash, ' said Croft.

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