Oil rose on Thursday, shaking off persistent concern about the outlook for demand after the U.S. government said it could impose sanctions on OPEC member Venezuela’s crude exports.
Venezuela’s opposition leader Juan Guaido declared himself interim president on Wednesday, winning backing from Washington and parts of Latin America and prompting socialist Nicolas Maduro, the country’s leader since 2013, to break relations with the United States.
Economic crisis under Maduro has decimated Venezuela’s oil industry, cutting its crude output to near 70-year lows around 1.2 million barrels per day (bpd), from double that three years ago.
Venezuela’s oil is predominantly heavy crude, which requires extensive refining, and as such, is frequently blended with lighter crudes to give refiners higher-value products.
With Iran already crippled by U.S. sanctions on its oil, a further drop in Venezuelan exports could squeeze global supply and rapidly push up prices.
“The potential is that the U.S. is starting to put things in motion and the risk for an acceleration in the decline in production from Venezuela is increasing,” Petromatrix strategist Olivier Jakob said.
“For now, it’s not being fully priced in, but I think this does provide a new upside risk for the market.”
Brent crude futures were up 10 cents at $61.24 a barrel by 1010 GMT, having touched a session high of $61.38. West Texas Intermediate (WTI) futures were up 14 cents at $52.76 a barrel.
Neither the Brent nor the WTI contract, both of which are backed by light, sweet crude, are linked directly to Venezuelan oil. But evidence of the concern around supply of heavy crudes is apparent in the U.S. physical market, where prices for Mars Sour, a medium crude, shot to their highest since early 2011 this week.
Physical markets around the world have already seen a sharp rise in prices for oil cargoes thanks in part to reduced supply from the Organization of the Petroleum Exporting Countries.
OPEC, together with non-members such as Russia, Kazakhstan and Oman, agreed in December to cut crude output this year by 1.2 million bpd to avoid a build-up in unused inventories, particularly if the global economic outlook darkened.
Concern about the U.S. trade war with China, as well as slower European growth and more fragile emerging economies, has undermined confidence in the oil market in the last few months.
The International Monetary Fund this week cut its forecasts for growth in 2019 and 2020.
(Additional reporting by Koustav Samanta in SINGAPORE and Colin Packham in SYDNEY; Editing by Dale Hudson)