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Oil benchmarks split paths Thursday as traders eye U.S. stock pile surge, political crisis in Venezuela

By Myra P. Saefong / MarketWatch

Petroleumworld 01 24 2019

Oil futures split paths on Thursday, with U.S. prices settling higher and the global benchmark logging a slight loss as traders reacted to a weekly surge in U.S. crude stockpiles and the possibility of U.S. sanctions on Venezuelan crude amid intensifying political tensions in the South American nation.

“The situation in Venezuela could give support to the oil markets if sanctions are put forward, but the builds in [U.S.] inventories are unexpected and the product markets are building in a very large fashion,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.

Read: Why Goldman's commodities chief is bullish on oil and gold prices right now

West Texas Intermediate crude for March delivery US:CLG9 added 51 cents, or 1%, to settle at $53.13 a barrel on the New York Mercantile Exchange, while March Brent LCOH9, +0.08%  lost a nickel, or less than 0.1%, to $61.09 on ICE Futures Europe.

President Donald Trump Wednesday officially recognized opposition leader Juan Guaido as interim president of oil-rich Venezuela, and declared sitting president Nicolás Maduro as illegitimate. The U.S. also threatened to impose sanctions on Venezuela's oil industry that could further hobble the country's exports. The U.S. imported about 17.7 million barrels of crude oil and petroleum products from Venezuela in October 2018, according to the Energy Information Administration .

Read: Here's what Venezuela turmoil means for oil prices

“While President Maduro appears increasingly imperiled, the generals seem to be sticking with him for the time being and hence things could get worse in the near term,” said Helima Croft, global head of commodity strategy at RBC Capital Markets, in a note. “In the event that a reformist government comes to power, the road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian disaster. Hence, we strongly caution against assuming that there will be a quick recovery in the event of regime change.”

Developments in Venezuela take on an even greater importance for the oil market considering that the country holds the rotating presidency of OPEC this year, analysts stressed.

“Prices are likely to remain on edge until we get further clarity relating to Venezuela,” said Matt smith, director of commodity research at ClipperData.

On Thursday, the Energy Information Administration reported that domestic crude supplies climbed by 8 million barrels for the week ended Jan. 18. That was contrary to expectations for a fall of 600,000 barrels expected by analysts polled by S&P Global Platts, but the American Petroleum Institute on Wednesday had reported a climb of 6.6 million barrels. Data were released a day later than usual because of Monday's Martin Luther King, Jr. holiday.

“A drop in refining activity, a dip in crude exports and a jump in crude imports has brought an abrupt end to recent crude draws,” said Smith. U.S. crude inventories had posted declines in each of the previous two weeks.

“As we shuffle into seasonal maintenance, it is no surprise to see refinery runs dropping, but this drop has been compounded by a big jump in imports to propel crude stocks higher,” he said.

Gasoline stockpiles rose by 4.1 million barrels last week, while distillate stockpiles edged down by 600,000 barrels, according to the EIA. The S&P Global Platts survey had shown expectations for supply increases of 2.9 million barrels for gasoline and 900,000 barrels in distillates.

On Nymex, February heating oil HOG9, +0.20%  shed 0.2% to $1.886 a gallon, while February gasoline RBG9, +0.11%  added 0.1% to $1.388 a gallon.

Separately, the EIA's annual energy outlook report released Thursday said U.S. crude oil production is expected to continue to set annual records through the mid-2020s and will remain greater than 14.0 million barrels per day through 2040.

The report also said that U.S. will become a net energy exporter by 2020 as U.S. crude production increases and domestic consumption of petroleum products decreases.

During Wednesday's session, oil fell sharply following a report from Reuters that the European Union may soon launch a mechanism that would allow companies to bypass U.S. sanctions, and trade with Iran.

Prices had been pressured to start the week after a warning for 2019 global growth from the International Monetary Fund and weak economic data out of China, which underlined concerns about global economic growth and energy demand.

Read: Here's what really worries investors about China's slowdown

In other energy trading, February natural gas NGG19, +2.29%  gained 4% to $3.099 per million British thermal units.

The EIA reported Thursday that domestic supplies of natural gas fell by 163 billion cubic feet for the week ended Jan. 18. A Bloomberg survey of analysts had shown an expected draw in the 80 billion to 160 billion cubic foot range, according to Robbie Fraser, global commodity analyst at Schneider Electric.


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Reporting by Myra P. Saefong from MarketWatch.

01 24 2019 20:07 GMT

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