Meanwhile, Hungary outlines the cost behind abandoning Russian oil imports: File Image/Pixabay
Washington allowing Chevron Corp. to negotiate its oil license with Venezuela's PDVSA caused a drop in oil prices on Tuesday, as U.S. average retail gasoline prices topped $4.50 per gallon for the first time.
West Texas Intermediate fell $1.80 to settle at $112.40 per barrel, while Brent fell $2.31 to settle at $111.93 per barrel.
Traders viewed Washington's allowance of negotiation (which is effective immediately but does not extend to more drilling or an increase in revenue for PDVSA) as heralding the eventual return of some Venezuelan output into the market, but Rebecca Babin, senior energy trader at CIBC Private Wealth Management, warned that the proposed changes "should been seen as positive development but not be mistaken as providing immediate relief to the tight market we are experiencing in real time."
Peter McNally, global sector lead, Third Bridge
We are getting into uncharted territory of crude inventories
The Joe Biden administration also influenced crude prices on Tuesday by suggesting tariffs on Russian oil as an alternative to embargoes – something it claims would keep the country's supplies on the market while limiting revenues to Moscow.
While this along with the European Union delaying its bans of Russian imports may seem to some critics like capitulation to the former Soviet Union, Peter McNally, global sector lead at Third Bridge, reasoned that "We are getting into uncharted territory of crude inventories; it's tricky to implement these bans at a time when demand normally picks up and inventories are low."
Indeed, Viktor Orba, prime minister of Hungary, on Tuesday said abandoning Russian oil imports would cost the country at least $810 million, money that would be necessary for revamping infrastructure and building a pipeline from Croatia.
The sum is a fraction of the 15 billion to 18 billion euros that Hungarian foreign minister Peter Szijjarto on Monday said would be required to fix his country's energy infrastructure.
Still, other countries see opportunity in the adversity caused by Russia's invasion of Ukraine: Jason Kenney, premier of Alberta, on Tuesday testified in Washington that Canada's oil production could increase by 900,000 barrels per day (bpd) to make up for supply losses from the conflict.
He elaborated that about 300,000 bpd of unused capacity exists in the North American pipeline system; another 200,000 barrels could be shipped by rail and "if midstream companies get serious about it, and if regulators approve it," a further 400,000 barrels could be added through pipeline reversals and technical improvements.
Kenney later told Bloomberg that by 2024 the completion of the Trans Mountain pipeline expansion project to British Columbia will give his country even more capacity to ship oil to the U.S.