Crude oil prices are weakening on Wednesday as pressure from worsening prospects for the world economy overwhelms the fears of supply cuts following the sanctions imposed on Venezuela.
The futures on US WTI crude oil depreciated by 0.04% to 53.29 USD per barrel after gaining more than 2.2% during the last Wall Street trading session. The Brent variety recorded a price drop of 0.02% to 61.31 USD per barrel, after rising by 2% yesterday.
Washington has announced sanctions against Venezuelan state oil company PDVSA, limiting the US-Venezuelan deals to buy crude oil and refined products. According to the analysts, initially, the sanctions are causing problems mostly for US refiners, which are forced to look for alternative supplies and increase their purchases from Canada. However, Canadian oil exports are experiencing difficulties due to the pipeline capacity.
The sanctions are intended to freeze the revenues of PDVSA from export sales to the US to approximately 500,000 barrels per day. Although this step has raised oil prices, markets have been relatively calm, as sanctions only affect Venezuelan supplies to the United States.
According to some analysts, Venezuelan oil can ultimately be purchased from China and India.
The report of the Schork Report, a daily oil trade publication, announced on Wednesday that many “international oil traders have significant trading operations in the US. At least in the short-term, these traders will no doubt quit buying from Venezuela, while US sanctions work.
Experts point to the global economic weakness as a reason for the lack of concern over current supply as well as the limitation of supply by the Organization of Petroleum Exporting Countries (OPEC).
Venezuela’s political crisis, as well as Saudi Arabia’s intention to further reduce oil production, should lead to a rise in oil prices, but growing concerns about global growth, especially in China, will keep it limited.
World economic growth and fuel consumption are expected to slow down this year on the background of a trade dispute between the two largest economies in the world – the US and China. Representatives of both countries are starting a new round of talks today.
Meanwhile, Libya’s biggest oilfield, El Sharara, will remain shut until the departure of an armed group occupying the site. However, global oil supply remains high, largely because of a more than 2 million barrels per day increase in US crude oil production last year to a record 11.9 million barrels per day.
Venezuela oil production and export
Venezuela has the world’s biggest proven oil reserves, but its potential has not been realized due to a lack of investment. The country is also a member of OPEC, which is implementing a supply cut deal. The Latin American country is predominantly the producer of heavier crude, exactly what the US Gulf refiners are thirsty for.
They will now have to turn elsewhere (possibly to Mexico, Saudi Arabia, and Iraq) to satisfy their needs for this type of crude, which would inevitably lead to a price spike.
Venezuela’s exports fell to little more than 1 million barrels per day in 2018 from 1.6 million barrels per day in 2017.
The United States has been the biggest buyer of Venezuelan oil despite their political differences, taking around half of the country’s export volumes, followed by India and China.
US gasoline prices
The average US price of regular-grade gasoline has jumped by 0.02 USD per gallon over the past two weeks to 2.33 USD per gallon. The rise comes after a decline of 0.64 USD per gallon over the previous 14 weeks and can be considered as an adjustment of the market.
The price reversal is a result of rising crude oil costs.
The highest average price in the US is 3.40 USD per gallon in the San Francisco Bay Area. The lowest average gasoline price is 1.89 USD per gallon in Tulsa, Oklahoma.
The average price of diesel fell by 0.02 USD over the past three weeks, to 3.01 USD per gallon.