What a Venezuelan oil embargo could mean for US

Anna Jefferson
January 28, 2019

Oil on Friday closed higher for the third day in a row as a deal to reopen the U.S. government eased investor fears while political turmoil in Venezuela roiled one of the world's biggest suppliers of heavy crude.

Brent crude oil futures ended the session at $61.64 a barrel, up 55 cents, or 0.9 percent.

USA crude inventories sharply rose by 8 million barrels last week, the Energy Information Administration said, versus forecasts of a decline of 42,000 barrels. She noted that a ban on exporting U.S. dilutents to dilute heavy Venezuelan oil could greatly impact the nation.

The United Nations Security Council, meanwhile, scheduled a meeting in NY on the turmoil, as the US ordered many of its diplomatic personnel out of the country and considered sanctions on its oil exports.

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"We think there is more risk of a downside price move from demand-related issues and USA supply-related outperformance than the risk of bullishness related to sharp OPEC supply cuts", the bank said in a research note.

The media outlet had added: "That estimate from the latest IMF World Economic Outlook is up from the forecast of 1 million percent the IMF made in July 2018 and more than a hundred times faster than its January estimate of 13,000 percent". OPEC member Venezuela is one of the world's largest oil producing countries, but its output has decreased from 2.4 million barrels per day in 2016 to a 70-year low of around 1.2 million bpd as the country has slipped into an economic crisis under Maduro's leadership. If the Trump administration pulls the trigger on energy sanctions, those declines could balloon to several hundred thousand more barrels, says Helima Croft, global head of commodity strategy at RBC.

Analysts said tough U.S. penalties on Venezuela's oil industry would be bullish for prices. The threat to reduce supplies supported futures prices.

After Maduro broke off relations with the USA, the US threatened to impose sanctions on Venezuelan oil.

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The surge in output has resulted in swelling U.S. fuel inventories. A growth in oil supply and falling demand causes prices to slump. It is frequently blended with lighter crudes to give refiners higher-value products.

The No Oil Producing and Exporting Cartels Act, or NOPEC, is a congressional bill that seeks to apply USA antitrust laws to OPEC to prevent the group from coordinating production to influence oil prices. It is also considering sanctions on oil deliveries, a move it has until now resisted, energy company sources told Reuters on Wednesday.

The "NDTV" had reported: "The South American country's known reserves grew between 2009 and 2010 by 40 percent, compared with the stagnation of Saudi Arabia's reserves, which OPEC figures to be 264.52 billion barrels".

The problem is that even though USA oil production has skyrocketed to record highs, America is not self-sufficient.

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And Venezuela relies on United States products to keep its oil industry afloat.

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