Near-month contracts for light, sweet crude and Brent crude oil benchmark both fell about $1.70/bbl Jan. 28 on concerns about a slowing world economy. Oil investors are watching China’s economy in particular for possible signs of slowing world oil demand.
Crude oil prices dropped the most in about 30 days on Jan. 28, which Saxo Bank analyst Ole Hansen attributed to “macroeconomic concerns…about a not-yet realized slowdown in [oil] demand. Once again, these concerns involved China.”
Separately, crude oil prices did not rise as was expected on a growing likelihood of disruption in Venezuela’s heavy oil exports and consequently lower revenues for the already struggling country.
As expected, US President Donald Trump’s administration issued new sanctions on Venezuela’s state-owned oil company Petroleos de Venezuela SA (PDVSA) to block US imports of Venezuela’s crude oil.
“The US is holding accountable those responsible for Venezuela’s tragic decline,” US Treasury Sec. Steven Mnuchin said.
PDVSA is the country’s biggest oil exporter. Analysts believe US sanctions increase pressure on Nicolas Maduro to resign and cede power to National Assembly leader Juan Guaido, who Trump and some other world leaders have recognized as Venezuela’s new president.
On Jan. 28, Guaido said he would take control of Venezuelan accounts abroad and appoint new boards to PDVSA and refiner Citgo Petroleum Corp.
Sara Vakshouri, president of SVB Energy International in Washington, DC, told OGJ that US sanctions on Venezuela probably will cause a short-term supply gap. She believes the gap can be filled by existing spare capacity within the Organization of Petroleum Exporting Countries and non-OPEC Russia.
“Venezuela’s oil production today is about 1.2 million b/d,” Vakshouri said, adding, “This is half of the country’s production back in 2016.”
Most of Venezuela’s production is exported with 500,000 b/d going to US refineries.
US sanctions on Venezuela crude imports will most affect US Gulf Coast refineries. Nevertheless, the share of Venezuela oil as the feedstock for these refineries already has been reduced over the past 3 years, Vakshouri said.
SVB Energy suggests more Saudi and Irani oil could be imported by US refineries to substitute for Venezuela crude.
“The Venezuela sanctions along with sanctions on Iran oil exports will create a tighter market for the heavy crude oil,” Vakshouri said. “This strengthens the heavy oil prices and narrows the gap between light and heavy crude oil.”
Energy prices
The March contract for light, sweet crude oil on the New York Mercantile Exchange fell by $1.70 to settle at $51.99/bbl while the April contract dropped $1.69 to settle at $52.29/bbl.
NYMEX natural gas for February declined 26¢ to close at a rounded $2.91/MMbtu on Jan. 28.
Ultralow-sulfur diesel for February fell 5¢ to a rounded $1.84/gal. The NYMEX reformulated gasoline blendstock for February fell by nearly 6¢ to $1.33/gal.
Brent crude for March dropped $1.71 to $59.93/bbl on London’s Intercontinental Exchange while the April contract declined by $1.78 to settle at $59.81/bbl. The gas oil contract for February decreased by $12.50 to $555.50/tonne on Jan. 28.
The average price for the OPEC basket of crudes was $59.57/bbl on Jan. 28, down 33¢.
Contact Paula Dittrick at [email protected].
