Recap: The oil market on Wednesday retraced Tuesday losses in anticipation of a potential reduction in Venezuelan exports. U.S. President Donald Trump ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela and stated that he regarded the country’s leaders as a foreign terrorist organization, increasing geopolitical tensions. The oil market posted a low of $55.20 on the opening and rallied higher in overnight trading, posting a high of $56.74. The market found some resistance and erased some of its gains amid the uncertainty of how many tankers will be affected by the blockade and how the U.S. will impose the blockade against sanctions vessels. The January WTI contract settled up 64 cents at $55.94 and the February Brent contract settled up 76 cents at $59.68. The product markets ended the session higher, with the heating oil market settling up 2.09 cents at $2.1495 and the RB market settling up 4.34 cents at $1.6943.
Technical Analysis: The crude market will remain headline driven as it awaits further developments regarding the blockade of all sanctioned oil tankers entering and leaving Venezuela. The market will also seek further news on the possible peace deal to end the war in Ukraine and the possibility of the U.S. imposing further sanctions on Russia if it rejects the efforts to secure a peace agreement. The crude market is seen finding resistance at $56.74, $57.09, $57.74, $57.80, $58.19, $58.39, $58.94, $59.05 and $59.17. Meanwhile, support is seen at $55.20, $54.98 and $54.71.
Fundamental News: U.S. President Donald Trump ordered on Tuesday a “blockade” of all sanctioned oil tankers entering and leaving Venezuela, in Washington’s latest move to increase pressure on Nicolas Maduro’s government. It is unclear how Trump will impose the move against the sanctioned vessels, and whether he will turn to the Coast Guard to seize vessels like he did last week. The administration has moved thousands of troops and nearly a dozen warships, including an aircraft carrier, to the region. In a statement, Venezuela’s government said it rejected Trump’s “grotesque threat.” China is the biggest buyer of Venezuelan crude, which accounts for roughly 4% of its imports, with shipments in December on track to average more than 600,000 bpd. For now, the oil market is well supplied and there are millions of barrels of oil on tankers off the coast of China waiting to offload. If the embargo stays in place for some time, then the loss of nearly a million barrels a day of crude supply is likely to push oil prices higher.
On Wednesday, Venezuela’s state-run oil company PDVSA was resuming oil cargo deliveries at its terminals following a cyberattack this week that affected its centralized administrative systems. The company, which is facing the U.S. announcement on Tuesday of a blockade of all sanctioned tankers approaching or planning to leave Venezuelan waters after the seizure of a cargo last week, was able to isolate oilfields, refineries, ports and other facilities from its central system to resume work. Workers at terminals are now making a manual record of deliveries to avoid a longer suspension of exports. PDVSA’s joint venture partner Chevron was on Wednesday loading two crude cargoes bound for the U.S.
Bloomberg News reported that the United States is preparing a further round of sanctions on Russia’s energy sector to increase the pressure on Moscow should President Vladimir Putin reject a peace deal with Ukraine. The U.S. is considering options such as targeting vessels in Russia’s so-called shadow fleet of tankers used to transport Moscow’s oil, and traders who facilitate the transactions. The new measures could be announced as early as this week.
IIR Energy said U.S. oil refiners are expected to shut in about 186,000 bpd of capacity in the week ending December 19th, increasing available refining capacity by 55,000 bpd.
Early Market Call – as of 8:35 AM EDT
WTI – Jan $56.28, down 62 cents
RBOB – Jan $1.7049, down 1.08 cents
HO – Jan $2.1440, down 3.60 cents
