How Venezuela chaos will impact oil prices

Oil prices stabilise at $61.58/b over by OPEC production cut

The American Petroleum Institute said Wednesday that US crude inventories rose by 6.6 million barrels in the latest week compared with expectations of a drop of 42,000 barrels.

Even news of possible US sanctions against Venezuela - a development that ought to push oil prices higher - didn't help crude prices rebound. The loss of Venezuelan barrels could drive up crude prices and squeeze American refineries that take in hundreds of thousand of barrels of Venezuelan oil each day.

Traders said the United States may need to sell oil from the U.S. Strategic Petroleum Reserve to cover supply shortfalls as additional shipments are secured via Canada or Mexico.

Demand may start to stutter because of a global economic slowdown, which is likely to dent fuel consumption.

The United States, the top importer of Venezuelan crude, is seeking to ensure that the OPEC member's oil revenue goes to opposition leader Juan Guaido, who swore himself in as interim president, and to cut off money from President Nicolas Maduro, a top US official said on Thursday.

Venezuela's oil exports to the United States remain the primary cash resource for its state-owned oil company, and efforts by the United States to cut off that revenue would likely force it to send crude to China, India or other Asian countries. But the two countries have long history of interdependency when it comes to oil that has endured through years of political tensions.

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.

Still, some analysts said the possibility of immediate sanctions were unlikely.

West Texas Intermediate crude for March delivery added 51 cents to close at $53.13/bbl on the New York Mercantile Exchange.

A report from Rystad Energy says that USA oil production is likely to increase in the coming years.

"The crisis in Venezuela appears to be reaching a crescendo" with significant consequences for the oil market in both the short and long term, said Helima Croft, chief commodities strategist at RBC Capital Markets LLC in NY.

"Crude oil prices were stronger after signs emerged that OPEC cuts are impacting trade". The primary importers of Venezuelan crude are Citgo, Valero Energy, and Chevron.

The International Monetary Fund reports that the country's GDP has fallen by 37 percent in the last few years with inflation in danger of running beyond 10 percent this year.

Analysts also pointed to a surprise increase in U.S. crude stocks after refineries cut output, according to industry data.

"There's been a developing opportunity for Canadian crude, in particular going into the U.S. Gulf Coast refineries", said Allan Fogwill, president of the Canadian Energy Research Institute. While a cutoff of Venezuelan imports would raise prices for refiners in the Gulf Coast, the market is competitive enough that producers are unlikely to pass along much of the cost to consumers, experts said.

"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.

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