What a Venezuelan oil embargo could mean for US

Oil prices stabilise at $61.58/b over by OPEC production cut

A trade dispute between the USA and China and tightening financial conditions around the world have hurt manufacturing activity in most economies and dragged China's growth last year to the weakest in almost 30 years. The threat to reduce supplies supported futures prices.

Trump's recognition of Guaido as Venezuela's leader appears to be a starting point, says Risa Grais-Targow, director for Latin America at risk consultancy Eurasia Group. That's because light oil yields more gasoline than diesel, so as fuel producers seek to ramp up diesel production, they are piling up on excess gasoline.

Add on top of that the possibility of USA sanctions on Venezuela's oil, which is also heavy, and the refiners are in a squeeze.

Analysts estimate it costs about US$20 per barrel to ship Canadian oil by rail to markets on the U.S. Gulf Coast, so discounts that are lower than that make the option less attractive.

Potential U.S. sanctions against Maduro's government or serious unrest in the country could cut the country's crude exports.

The oil markets have had a muted reaction so far this week to the chaos in Venezuela.

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Venezuelan oil exports to the USA have declined steadily over the years, falling particularly sharply over the past decade as its production plummeted amid its long economic and political crisis.

WTI met some fresh buying interest earlier in the day on rumours that the United States could impose sanctions on Venezuelan oil exports in response to the rising social turmoil in the Caribbean country. At the same time, a scarcity of heavy crude is making it more expensive and less lucrative to process. That could mean designating the Guaido government as the legitimate steward of Venezuela's assets, including USA refineries owned by Citgo, the refining subsidiary of state-owned energy company Petróleos de Venezuela.

The sanctions could put additional strain on global supplies of certain crude grades. OPEC's latest production cuts tightened the supply of heavy crude from Saudi Arabia. That's because Venezuela's oil shipments to China and Russian Federation are usually taken as repayment for billions of dollars in debts. [API/] The U.S. Energy Information Administration reports official figures later on Thursday.

Other industries that rely heavily on oil may feel impacts.

The American Fuel & Petrochemical Manufacturers, which represents 95 percent of the refining sector, has lobbied hard over the past two years against any attempts to restrict imports of Venezuelan oil. Even if Maduro's government is replaced, "the road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian crisis", Tran and fellow RBC analyst Helima Croft wrote in a note.

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