Global slowdown worries keep oil prices under pressure

Ann Santiago
January 28, 2019

Oil prices were steady on Thursday as renewed concerns about the global economic outlook offset support from a USA threat of sanctions on OPEC member Venezuela.

Brent for March settlement advanced 35 cents to $60.74 a barrel on the London-based ICE Futures Europe exchange, and traded at a $7.78 premium to WTI.

With Iran already crippled by USA sanctions on its oil, a further drop in Venezuelan exports could squeeze global supply and rapidly push up prices.

Venezuelan President Nicolas Maduro counts on support from the army to counter-balance worldwide backing for parliament speaker Juan Guaido, who has proclaimed himself interim president.

However, the market gains were capped as the U.S. Energy Information Administration (EIA) reported Thursday that the nation's crude oil inventories jumped 8 million barrels in the week ending January 18.

Global oil markets are facing an uncertain year with slowing global growth driving less global demand for oil while the supply picture looks unclear with production cuts by OPEC and Russian Federation potentially counteracted by the growth in US shale oil output.

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

“The oil market is partially pricing in the risk to Venezuela's crude production, which has been plummeting in recent years, ” Vandana Hari of Vanda Insights said.

"Venezuelan production will decline by an additional 300,000-500,000 barrels per day (bpd) this year, but such punitive measures could expand that outage by several hundred thousand barrels", it said.

The response may have been delayed, but traders on Friday finally reacted to the crisis in Venezuela by causing crude prices to climb, albeit modestly, and all but completely ignored news of a spike in USA production that would have normally sent prices plummeting.

The American Fuel & Petrochemical Manufacturers, which represents 95 percent of the refining sector, has lobbied hard over the past two years against any attempts to restrict imports of Venezuelan oil.

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

In the event of a change in government, global oil prices could rise in the short term, but decline as time goes on, analysts believe.

The political chaos in Venezuela could have a major impact on the global oil market.

USA sanctions on Venezuela could increase the cost of heavy crude, dealing a setback to American refineries, analysts warned.

The prospects of future oil demand are getting clouded by the global growth worries, analysts said.

"The road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian disaster", she said.

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