Oil prices rise on declining Venezuelan production, Iran sanctions worries

oil prices
Oil prices rose alongside the US dollar on Monday and hit fresh 2018 highs mostly due to a steady decline in Venezuelan crude prices and investors' concerns over the reintroduction of US sanctions on Iran.  Anadarko photo.

Oil prices rose alongside the US dollar on Monday and their highest levels since November 2014 mostly due to a steady decline in Venezuelan crude production and investors’ concerns over the reintroduction of US sanctions on Iran.  Anadarko photo.

Oil prices up as ConocoPhillips seize some PDVSA’s Caribbean assets

US oil prices settled to just under $70/barrel after hitting a high not seen since November 2014, mostly due to dropping Venezuelan oil output and investors’ concerns that the Trump administration will abandon the Iran sanctions relief agreement.

US West Texas Intermediate crude futures settled the day at $70.73/barrel, up $1.01 cents, breaking the $70 mark for the first time since November 2014.

Benchmark Brent futures rose $1.30 cents to end the session at $76.17/barrel and the Canadian Crude Index jumped 1.47 per cent, or 75 cents to $51.86/barrel.

US oil giant ConocoPhillips began the process of taking Caribbean assets belonging to Venezuela’s state-run oil company, PDVSA.  The move comes after the Houston-based company won a $2 billion arbitration award over the nationalization of Conoco’s assets in 2007, according to three Reuters’ sources.

The move will further cripple PDVSA which is already reporting declining crude outputs and exports.

“If ConocoPhillips is successful, then it will limit the revenues PDVSA will have and give them even more problems paying their bills and producing their oil,” Gene McGillian, manager of market research at Tradition told Reuters.

The Conoco move will affect PDVSA’s operations in on the Caribbean islands of Curaçao, Bonaire and St. Eustatius, which process and export about 400,000 barrels per day (b/d) of Venezuelan crude.

Years of unrest in Venezuela have had a heavy impact on the country’s oil industry.  In the first quarter of 2018, PDVSA exported 1.19 million b/d of crude from its Venezuelan and Caribbean terminals, down 29 per cent from the same period in 2017.

Since the early 2000’s, Venezuelan oil output has dropped by half.

Oil prices were also boosted by expectations that US President Donald Trump will remove the US from the 2015 Iranian nuclear agreement. Trump said on Monday that he will announce his decision on the Iran deal Tuesday at 2 p.m., EDT, four days ahead of his deadline.

“I think it’s a sign that he’s planning on reimposing sanctions, and the only question for oil markets is how soon,” Joe McMonigle, an energy analyst at Hedgeye Research told Reuters. “I think they would as quickly as possible try to implement the sanctions.”

Should the US leave the deal, expectations are that the Trump administration will re-impose sanctions on Iranian crude.   If Trump restores core US sanctions, under US law, he has to wait at least 180 days before imposing their furthest-reaching measure which is targeting banks of countries that do no significantly reduce their purchases of Iranian crude.

RBC Capital Markets analysts told Reuters that should the US withdraw from the deal, Iran’s exports could be cut by 200,000 to 300,000 b/d.

Defiant Iranian officials say the country’s oil industry would continue to develop even if the US left the accord.

According to Reuters, the S&P energy index was the big gainer for Monday among the 11 major sectors, rising by 1.2 per cent.




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