Economy

Oil steady as US gasoline glut offsets Venezuela turmoil

Oil steady as US gasoline glut offsets Venezuela turmoil

But concern about the supply of heavy crudes is apparent in the USA physical market, where the price for Mars Sour, a medium crude, shot to its highest since early 2011.

Oil prices edged up on Friday as turmoil in Venezuela increased the chances of tighter global supply if the US makes good on signals that it could impose sanctions on Venezuelan exports.

Nicolas Maduro, the country's Leader since 2013, responded by breaking relations with the U.S.

The United States is Venezuela's biggest and most important oil customer, accounting for 39% of the OPEC nation's deliveries a year ago, according to ClipperData.

RBC Capital Markets is already forecasting an additional drop of 300,000 to 500,00 barrels a day from Venezuela in 2019.

US Baker Hughes will publish its oil rig count later in the day. That's because Venezuela's oil shipments to China and Russian Federation are usually taken as repayment for billions of dollars in debts.

"Sharp production cuts by OPEC+ have kept crude oil futures supported however as market reports indicate for a marked output reduction in Dec 2018", said Benjamin Lu, analyst at Phillip Futures.

Global oil markets are still well supplied thanks in part to a spike in USA output.

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Add on top of that the possibility of US sanctions on Venezuela's oil, which is also heavy, and the refiners are in a squeeze.

The ongoing OPEC+ agreement to curb oil output remains the nearly exclusive source of support for prices.

Refiners would be forced to pay up for heavy crude from other nations - and incur higher shipping costs to bring those barrels home, according to Simmons Energy analysts led by Blake Fernandez. That could mean designating the Guaido government as the legitimate steward of Venezuela's assets, including US refineries owned by Citgo, the refining subsidiary of state-owned energy company Petróleos de Venezuela. Sanctions would likely accelerate those trends. The only countries that sent more crude to the United States were Canada, Saudi Arabia and Mexico.

Any sanctions would come just as the global market for heavy crude is tightening.

In a news conference, Guaido, who declared himself acting president this week, said he's preparing to dismiss the head of state-run oil company Petroleos de Venezuela SA as well as the board of its Houston-based refining arm, Citgo Petroleum Corp., taking on two of the power centers that help to bankroll the Maduro government.

And Venezuela relies on U.S. products to keep its oil industry afloat.

'Most of the cash that the Venezuelan government gets comes from the United States 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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