Venezuelan regime change could add more oil to market – analysts
The end of Nicolas Maduro presidency in Venezuelan could add fresh barrels to an already oversupplied market, according to analysts.
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The global oil market has triggered a price reaction after the dramatic detention of Venezuelan President Nicolas Maduro and his wife from Caracas on Saturday, contributing to push front-month ICE Brent crude up by around $1/bbl.
US President Donald Trump said the US would assume control of Venezuela and reaffirmed that Washington’s embargo on the country's oil would stay in force.
The embargo is not oil-tight, however. A dozen oil tankers loaded with Venezuelan crude oil have left the country since the beginning of the year, defying the US government's export blockade, according to a Reuters report.
These sanctioned tankers typically carry crude oil to China, according to Reuters, which cited tankertrackers.com and shipping documents from Venezuela’s state-owned oil company PDVSA.
Despite near-term turmoil, oil market analysts said the US intervention could ultimately pave the way for additional Venezuelan supply returning to the market.
Trump has reiterated that US oil companies would return to Venezuela to work in its petroleum sector. Chevron has been the only US company to operate there since Venezuela nationalised its oil industry in the 1970s.
The outlook for Venezuelan oil production now hinges on whether or not the US lifts sanctions, according to market analysts.
With global supply already ample, market analysts appear more focused on the prospect of extra barrels eventually entering the system than near-term export disruptions.
"An increase in Venezuelan supply would likely result in larger flows to US Gulf Coast refiners," two analysts from ING Bank commented.
“On one hand, geopolitical instability in Latin America argues for a risk premium,” SPI Asset Management managing partner Stephen Innes said. “On the other, the prospect of Venezuela’s vast reserves eventually returning to market argues the opposite,” he added.
Venezuela is a founding members of the Organization of the Petroleum Exporting Countries (OPEC). It controls almost 17% of global oil reserves, or 303 billion bbls.
The detention of President Maduro and the prospect of US control over Venezuela’s oil assets “leaves only further supply uncertainty for the oil market, something the market has faced plenty of over the last year,” ING Bank analysts said.
By Aparupa Mazumder
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