Venezuelan oil exports to US still a primary source of cash

Venezuelan oil exports to US still a primary source of cash

Venezuelan oil exports to US still a primary source of cash

Rory Johnston, a commodity economist at Scotiabank, said the Canadian heavy crude price could further improve depending on whether the USA moves forward with sanctions and what happens with Venezuelan production.

OPEC, together with non-members such as Russia, Kazakhstan and Oman, agreed in December to cut crude output this year by 1.2 million bpd to avoid a build-up in unused inventories, particularly if the global economic outlook darkened.

Any disruption in Venezuelan supplies also is likely to increase demand for heavy-sour crudes - the dense, viscous and relatively more sulfurous varieties that the Latin American nation produces.

"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. International Brent crude oil futures were at $60.90 a barrel at 0745 GMT, down 24 cents, or 0.4 percent, from their last settlement.

The administration added to pressure on Maduro's regime on Wednesday by recognizing opposition leader Juan Guaido as the country's interim president.

Meanwhile, the United States last November re-imposed sanctions against Iran's oil exports.

"The quality of Venezuelan oil has been deteriorating after years of underinvestment and aging infrastructure", said Virendra Chauhan, an analyst at industry consultant Energy Aspects Ltd.

The U.S. government could lessen the blow by phasing in restrictions on Venezuelan oil imports in a way that mirrors the trend U.S. refineries have already always been adjusting to, said John Auers, executive vice president of the refining consultancy Turner, Mason & Company. West Texas Intermediate (WTI) futures were up 14 cents at $52.76 a barrel.

"It could lead to all of its oil production going offline and chaos in the country", said McMonigle. They'll have to find heavy crude elsewhere. The Trump administration has drafted a slate of potential restrictions on Venezuelan crude exports but hasn't decided whether to deploy them, according to people familiar with the matter.

Any sanctions would come just as the global market for heavy crude is tightening.

The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, started supply cuts late a year ago to tighten markets and buoy prices. Mars traded at a $7.10 premium to USA crude on Thursday, a five-year high, according to Refinitiv Eikon data, as bidders came into the market to secure supplies through the second quarter, traders said. While a cutoff of Venezuelan imports would raise prices for refiners in the Gulf Coast, the market is competitive enough that producers are unlikely to pass along much of the cost to consumers, experts said.

"It's certainly not a bad thing for Canadian heavy crude producers to have a competitor in a market like the U.S. Gulf Coast potentially go away", said John Auers, executive vice-president at energy consultant Turner Mason & Dallas.

"The breakdown in diplomatic relations was interpreted as upping the possibility of a US sanction on Venezuelan oil that would likely force USA refiners to seek alternative supplies at higher prices, hence the WTI gains", Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

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