Oil Rises as World Grapples With Venezuelan Crude Output Risks

Venezuela sanctions uncertainty and high oil demand push prices back up to $80 per barrel

Venezuela sanctions uncertainty and high oil demand push prices back up to $80 per barrel

Not helping matters was worldwide condemnation on Monday directed at Venezuelan's leftist president Nicolas Maduro, after his re-election in a weekend vote was denounced as a farce to cement autocracy.

In the US, crude inventories probably fell by 2 million barrels last week, according to the Bloomberg survey of analysts.

US crude hit its highest level since 2014 on Monday amid rising concerns that Venezuela's oil output could fall further following the country's presidential election and potential sanctions on the OPEC-member nation.

OPEC and non-OPEC producers reached an agreement in December 2016 to curtail oil output jointly and ease a global glut after more than two years of low prices.

Based on the combined disruptions, analysts at Barclays project that global oil and liquids inventories will drop during the current quarter at the fastest pace since a year ago. For example, the average US household spends nearly as much money as they earn each year (resulting in an approximate 5% average annual savings rate), and the percentage of gross income spent on gasoline varies from 2-4% depending on prices, or about $1,000 per year. None other than Saudi Arabia's Energy Minister Khalid al-Falih last week told media there is no reason for Brent to go higher than US$80 as there is enough oil being produced globally to match demand. The more-active July contract rose $0.20 to $72.55. Total volume traded was about 18 percent below the 100-day average.

The price of the Brent crude oil has already gained 0.98 percent or $0.78 on Tuesday and 48.86 percent this year. The futures on USA crude oil with delivery in June rose by 0.40% to 72.53 United States dollars per barrel. Australia's ASX 200 was down 0.79 percent and the Shanghai Composite was down 0.46 percent. An analysis by this newspaper, more than a year ago, had indicated that nearly the entire reduction of about 0.6% of the gross domestic product (GDP) in India's fiscal deficit between FY14 and FY16 could be attributed to the sharp fall in crude prices.

Trump issued an order on Monday prohibiting purchases of debt owed to Venezuela including Petroleos de Venezuela SA, the Latin American nation's state-owned oil company. Unexpected disruptions, like plunging oil output from Venezuela, have tightened supplies even further.

"Venezuela is the major risk for the oil markets for the next weeks or months to come", IEA Executive Director Fatih Birol said in a Bloomberg TV interview in Istanbul. The Paris-based agency, as an energy security organization, is "ready to act if and when it is at all necessary", Birol said.

With the level of inventory standing at a five-year low, we are looking at a bull case scenario for oil. Stockpiles at the key pipeline and storage hub in Cushing, Oklahoma, may have declined by 250,000 bbl.

"The specter of US oil sanctions on the embattled Latin American producer now looms large as Washington strives to tighten the financial noose", PVM Oil Associates strategist Stephen Brennock said, in a research note.

"Oil prices are finely balanced in today's trading session".

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