Prices of U.S. West Texas Intermediate and London's Brent oil fell for a second straight day on Wednesday after forecasts were for a decline of 42,000 barrels last week in U.S. crude stockpiles versus the 2.7-million drop in the week to January 11.The U.S. Energy Information Administration will report official inventory numbers on Thursday. But it also reflects apparent weakness in one of oil's most important markets: gasoline.
"The quickly devolving situation in Venezuela appears to be approaching some type of tipping point", Helima Croft, RBC's global head of commodity strategy, wrote to clients on Wednesday. That's because Venezuela's oil shipments to China and Russian Federation are usually taken as repayment for billions of dollars in debts.
The oil markets have had a muted reaction so far this week to the chaos in Venezuela. Venezuela's GDP has plunged by 37% between 2012 and 2017, according to the International Monetary Fund.
The launch of the mechanism would allow the European Union to skirt USA sanctions, but that may have been offset by reports that the Trump administration is telling energy companies that they should get prepared for sanctions on Venezuela, said Flynn. Sanctions would likely accelerate those trends.
Guaido is considering naming a board to state-run PDVSA's US subsidiary, Citgo Petroleum, in a gambit to generate revenue for the opposition. Traders had priced in a 900,000 barrel increase.
'To normalize the country's oil output will take months and years, but the first signs of irreversible political changes in Venezuela will make any oil bull extremely cautious and concerned, ' said Tamas Varga, an analyst at PVM Oil Associates Ltd.in London.
The problem is that even though U.S. oil production has skyrocketed to record highs, America is not self-sufficient.
The decline in Venezuelan standards of living, combined with its continuous decline in oil output has been phenomenal: production now stands at approximately 1 million barrels per day, a more than 70% reduction since the Hugo Chavez days where production stood close to 3.5 million barrels per day, and the lowest level since the 1940s. Production of heavy crude in Mexico has been declining, and although there is a strong supply in Canada, there are challenges to getting that crude to the Gulf Coast refineries.
The United States can also sanction countries doing business with Maduro.
Refineries along the Gulf Coast are set up to process heavy crude and they may end up spending more money buying it elsewhere.
"It says less product will be coming down the pipe but we are already dealing with very high inventories in gasoline and distillates for this time of year", said Donald Morton, who runs an energy trading desk at investment banking firm H.J. Sims & Co. The primary importers of Venezuelan crude are Citgo, Valero Energy, and Chevron. Even inthe event of a total collapse of production the effect will mostly be psychological, as Venezuela now accounts for, at best, about 1.3% of the world's total crude oil. Any major piece of news regarding further production slowdowns is expected to have more of a psychological rather than an actual effect on Oil, thus making the impact transitory. If this support fails then look for the selling to continue into $56.65.