How Venezuela Impacts Crude Oil Prices

August 1, 2017
| In the News


By Johanna Bennett, Aug. 1, 2017 3:55 p.m. ET

Crude oil’s winning streak came to an end today. The U.S. benchmark fell below $50 a barreland brent crude futures for September delivery dropped almost 2.2% to $52.62 a barrel.

The cause? Investors once again doubt OPEC’s promised production cuts after reports that the cartel’s production climbed in July.

But Brock Hudson, an oil and natural gas expert at Carl Marks Advisors, argues that crude prices are impacted by more than OPEC politics and inventory numbers.

Another headline issue — not always part of reporting on the crude  market — is the turmoil in Venezuela and the concern over restricted supplies for heavy/sour Venezuelan crude, for which many of the US gulf coast refineries are configured.  Heavy oil production from Venezuela, Mexico and Columbia are down 10% from last year and U.S. imports of Venezuelan crude fell 32 percent in June to a 13-year low of 491,000 bpd. PDVSA’s exports have declined this year as production and shipping problems cut its ability to meet its supply commitments.  The Venezuelan situation, along with the fire at one of Europe’s largest refineries (Pernis) is causing further tightness in the diesel market.  End of July was a product-heavy news day and product prices responded accordingly, pulling crude along for the ride.

Hudson warns against inferring too much into the oil futures market from one day’s headlines.

It stills seems that there are significant worldwide inventory levels…I remain cautious and concerned about the increasing US rig count, the number of drilled and uncompleted (DUC) wells in the US, OPEC cheating, and the impressive productivity gains that the US shale producers have created during the downturn through drilling efficiencies and increased frack intensity.

The weakness in the US dollar over the last month has provided the support to the price of crude.  Other industry experts seem to think that the correlation of crude prices to dollar strength is stronger than its correlation to supply or demand.

In the ETF realm, United States Oil (USO) fell more than 2% to $10.07 a share ahead of today’s closing bell, and the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) fell almost 3% to $5.17 a share.

Meanwhile, shares of the Energy Select Sector SPDR (XLE) inched 0.11% lower in recent market action.

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