Oil Market Roundup - Friday Week 4

Friday January 25, 2019

The response may have been delayed, but traders on Friday finally reacted to the crisis in Venezuela by causing crude prices to climb, albeit modestly, and all but completely ignored news of a spike in U.S. production that would have normally sent prices plummeting.

Brent ended Friday's session up 55 cents to $61.64 per barrel, while West Texas Intermediate rose by 56 cents to $53.69 per barrel - meager gains that were not enough to prevent the benchmarks from incurring a weekly loss of 1.7 percent and 0.2 percent respectively, the first week of losses in four weeks.

The driver of Friday's trading activity was said to be the U.S. signalling that it may impose sanctions on Venezuelan exports after recognizing opposition leader Juan Guaido as interim president this week, prompting president Nicholas Maduro to cut ties with Washington.

RBC Europe pointed out that "Venezuelan production will decline by an additional 300,000-500,000 barrels per day [bpd] this year, but such punitive measures could expand that outage by several hundred thousand barrels."

John Kilduff, founding partner at Again Capital, told CNBC's `Squawk Box' that refiners on the U.S. Gulf Coast are "heavily dependent" on thicker, heavier Venezuelan oil "to the tune of about 500,000 bpd," and sanctions against the Bolivian republic "could throw a monkey wrench in the oil market because not only would we not be buying their oil....the rest of the world may not be getting Venezuela's oil because they wouldn't have the byproduct they need from us to make their oil flow."

Bloomberg television looked at Venezuela another way: when asked if a change of government would enable the country to get more rigs back on line and therefore cause crude prices to drop, Liam Denning, a Bloomberg Opinion columnist, pointed out that even if the sanctions weren't imposed and the country underwent a smooth transition to a new government, it would take a long time for oil production to fully recover.

Of apparent less concern to traders was news from Baker Hughes that U.S. drillers added 10 oil rigs in the week to January 25, bringing the total count to 862 - the first increase in the number of operating rigs this year - however, like the Venezuela issue, this news may have a delayed reaction that could play out in coming days.

As for trading activity in the near future, expect the market to be influenced by the usual suspects, possibly headed by Reuters polls of hundreds of economists worldwide suggesting that a synchronized global economic slowdown is underway and would deepen if the U.S.-China trade war escalated.

Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, summarized the overall sentiment by stating, "While the current state of affairs is price constructive for oil, the market is hesitant when it comes to the global outlook."