Oil rises amid worry that Venezuela's output could fall further

Rex Christensen
May 23, 2018

"Current U.S. foreign affairs will take its toll on oil prices". Trump signed an executive order on Monday restricting Venezuela's ability to liquidate state assets, a senior administration official told reporters.

Venezuelan crude output may drop below 1 MMbpd in the coming months from an April level of 1.5 MMbbl, Barclays said in a May 18 report, raising its 2018 forecast for Brent to $70/bbl from a previous outlook of $63. "There's increasingly a view that this could be as bad as Libya was in its worst days - that production could fall to a very small percent of what it is capable of doing". USA crude futures were down 2 cents at $71.26. The global benchmark crude traded at a $6.99 premium to WTI for the same month.

Venezuela's socialist President Nicolas Maduro faced widespread worldwide condemnation Monday after his re-election in a weekend vote his critics denounced as a farce, cementing autocracy in the crisis-stricken oil producer. The country's oil output has fallen by one-third in the past two years to its lowest point in decades. But now the United States is among the top oil producer and would like to gain as much market share as possible, so what if it has to put a ban on Iran's export. "The strong supply figure was also backed by strong petroleum demand of over 20.3 million bpd last month, motor gasoline demand for first four months of 2018 was the second highest on record".

"It seems as if the pull backs are just short-term profit taking and we will see whether people are going to be willing to drive the market through $80 again", he said. Geopolitical concerns, supply shocks in Venezuela, Mexico and Libya sustained production cuts despite targeted moderation of Organisation for Economic Co-operation and Development (OECD) inventories, tight demand-supply balance amid declining production and a weak dollar are some of the key factors which led to a rise in Brent crude oil price to $ 80/bbl.

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Meanwhile on Sunday, U.S. Treasury Secretary Steven Mnuchin said that the U.S. was "putting the trade war on hold" amid talks with China.

The US is already in a trade war with many countries it would need a robust economy to fight the war on various fronts, for which it needs to keep the shale oil and gas sector, its money-making machine well oiled.

Rising output from USA shale and key OPEC producers could end the rally, BP CEO Bob Dudley told Reuters. In the week to May 11 the average daily in the USA hit 10.72 million barrels largely thanks to the surge in shale production, which, according to BP's Bob Dudley, will push oil back down to between US$50 and US$65 a barrel.

Mr Pouyanne said geopolitics, particularly President Donald Trump's decision last week to withdraw the U.S. from the Iran nuclear deal and the severe decline in Venezuelan oil output, are driving prices higher.

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