Venezuela crisis puts oil market in panic mode

Oil rose today, shaking off persistent concern about the outlook for demand after the U.S. government said it could impose sanctions on OPEC member Venezuela's crude exports.

Brent crude futures were up 10 cents at $61.24 a barrel by 1010 GMT, having touched a session high of $61.38. WTI futures were up 14 cents at $52.76 a barrel, CNBC reported.

Venezuela's opposition leader Juan Guaido declared himself interim president yesterday, winning backing from Washington and parts of Latin America and prompting socialist Nicolas Maduro, the country's leader since 2013, to break relations with the U.S.

The Trump administration told U.S. energy companies it "could impose Venezuela oil sanctions as soon this week if the political situation there deteriorates further," Reuters Venezuela tweeted Wednesday, citing sources.

Economic crisis under Maduro has decimated Venezuela's oil industry, cutting its crude output to near 70-year lows around 1.2 million barrels per day (bpd), from double that three years ago.

The U.S. imported about 17.7 million barrels of crude oil and petroleum products in October 2018, according to the Energy Information Administration.

The executive vice-president of NewTech Services, professor of the Gubkin Russian State University of Oil and Gas, Valery Bessel, speaking to Vestnik Kavkaza, noted that the ban on Venezuela oil imports in the U.S. is impossible. "Almost oil from Venezuela is imported to the U.S., because processing heavy Venezuelan oil requires refineries with a high Nelson complexity index. Such refineries exist only in the U.S. and partially in Europe and China. Therefore, Donald Trump’s statements are nothing more than an information attack," he said in the first place.

"The United States will not give up on Venezuelan crude oil, since the U.S. oil and gas complex makes major money on refining oil and gas. Therefore, the U.S. is interested in keeping Venezuela under control. As for the price increase, prices will grow as long as the outcome of the conflict is unclear," Valery Bessel added.

A senior analyst of 'Uralsib', Alexei Kokin, on the contrary, Venezuelan oil imports to the United States have recently declined. "Last year, they imported slightly more than 500 thousand barrels per day, in January 2019 - about the same amount - while in 2015, the U.S. imported 800 thousand barrels of Venezuelan oil per day. These 500 thousand barrels per day can be replaced. On the other hand, Venezuelan oil is of low quality, and therefore high-tech American refineries can have greater profit, because they buy crude at a discount, and the food basket is still of high quality. But if they replace the discounted oil with another one, this benefit may be lost. However, amid total oil imports of 7-8 million barrels per day, it will not be so disastrous if the U.S. refuses Venezuelan raw materials," he said.

"If the U.S. does impose sanctions on Venezuela, Venezuelan oil will simply go in a different direction. Part of Venezuelan oil will continue to be processed at the Trinidad and Tobago plants, but they will have to transport the rest to new plants on the west coast of India, in the worst case, to China. If the crisis ends, the situation will be stabilized, and Venezuela will start increasing oil production again - which is a certain risk for the market," Alexey Kokin pointed out.