Oil erased its losses in another volatile session as a deal expected to bring more Venezuelan crude to the market in the months ahead did little to assuage immediate concerns that the conflict in the Middle East will reduce supplies.
(Bloomberg) — Oil erased its losses in another volatile session as a deal expected to bring more Venezuelan crude to the market in the months ahead did little to assuage immediate concerns that the conflict in the Middle East will reduce supplies.
Analysts estimate that the US’s suspension of some restrictions on Venezuela, in return for plans for freer elections in the country, may enable the South American nation to pump 200,000 more barrels a day, a roughly 25% jump in output. Still, traders are assessing how much and how quickly more Venezuelan oil could help markets, with a report saying OPEC+ doesn’t expect the development to require any change in its policy.
Venezuelan crude is only a “band-aid solution” for the tightening oil market, said Ed Moya, senior markets analyst at Oanda.
“The risks of a wider war in the Middle East will likely lead to extensive efforts by the West to cover any shortfalls or disruptions of crude outflows,” Moya said. “Venezuela won’t be able to ramp up output to meaningful levels, so whatever oil-price relief we are seeing should be temporary.”
US President Joe Biden plans an Oval Office address on the Middle East crisis on Thursday amid a drive to prevent the conflict from escalating. The speech follows a brief midweek visit to Israel to show solidarity following the attack by Hamas. West Texas Intermediate edged up above $88 a barrel, recovering from an earlier drop below $87.
Oil has been volatile since the Oct. 7 assault on Israel by Hamas, which is designated as a terrorist organization by the US and European Union. An expected ground offensive by Israel into Gaza has raised concerns of a more aggressive response from Iranian-backed Hezbollah in southern Lebanon, which could embroil wider regional powers. Worries that the conflict could affect fuel flows have countered the ongoing drag from higher interest rates around the world.
Iran has appealed for an oil embargo against Israel, but Citigroup Inc. said Israel’s main suppliers, including Kazakhstan and Azerbaijan, were unlikely to heed such a call.
US data, meanwhile, pointed to tight physical markets. Holdings of crude at Cushing, Oklahoma — the delivery point for US benchmark WTI — dropped by more than 700,000 barrels last week to hit the lowest level since 2014.
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–With assistance from Mia Gindis.
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