Venezuela Sanctions Back on the Table

Oil prices are trading flattish this morning after a variety of news items are battling it out to influence prices in both directions. Crude ended Friday almost a dollar higher, but since then it’s been slow going. WTI Crude prices are currently $68.72, dancing above and below Friday’s closing price without clear convictions either way.

Fuel prices are mildly higher this morning, following a strong show on Friday. Diesel prices are $2.2076, a gain of half a cent over Friday’s closing price. Gasoline prices are $2.0866, gaining 0.9 cents.

Markets had a lot of news to process over the weekend, which have kept traders guessing at where prices will head this morning. Friday brought the regular weekly release of Baker Hughes’ rig count data. US rig counts fell by 13 rigs, the largest weekly decline in rigs since October 2017. On the other hand, Canada’s rigs increased by 17, so the overall North America change was +4. Canada’s increase was counter-seasonal (Canadian rig counts tend to decline in the summer), making the report net bearish for the market.

Adding to the bearish news, US-China trade talks disbanded once again without any meaningful progress. On Thursday, both countries implemented 25% tariffs on $16 billion worth of goods, though the tariffs were not the cause of the trade talks ending. Both parties said the latest round of talks have been “candid” and “constructive”, but without concrete resolutions. On a more positive note for US oil producers, it appears crude oil has been taken off the tariff target list. China’s refineries have cut their purchases of American oil for the past two months, but it appears exports to China should pick up in the coming months, which will prop up WTI crude prices.

Last week,US officials indicated Venezuela sanctions are back on the table, bringing back the price risk premium of Venezuela’s collapsing oil market. For a while, officials had been holding off on sanctions since Venezuela’s economy was doing poorly enough on its own. Now, as Maduro continues holding onto power, officials are considering either full-on sanctions against all oil trade, or potentially more targeted action limiting American exports of diluents (light oils Venezuela blends with their tar-like crude to make it flow through pipelines). American refineries are already searching for supply alternatives to Venezuela’s crude production. Venezuela’s ongoing economic collapse has caused supply to plummet – any further degradation in their supply position could cause prices to rise even higher.