Oil Jumps 2%% After OPEC Output Pause, Venezuela Shock

Oil Jumps 2% After OPEC Output Pause, Venezuela Shock


   Oil Jumps 2% After OPEC Output Pause, Venezuela Shock

   
Barani Krishnan
DTN Refined Fuels Market Reporter

   SECAUCUS, NJ (DTN) -- Crude futures jumped almost 2% Monday (1/5) on 
near-term supply fears as OPEC+ member countries affirmed over the weekend to 
pause output hikes in the first quarter. Additional concerns over global 
production woes were fueled by uncertainty in Venezuela following the capture 
of President Nicolas Maduro by U.S. forces late Saturday (1/3).

   OPEC's November pledge to maintain steady output through March responded to 
analyst concerns over a massive supply surplus driven by weak demand and rising 
non-OPEC production. The strategic freeze aims to stabilize global markets as 
the International Energy Agency anticipates a 3.8 million bpd glut this year. 
Additional global supplies from non-OPEC output are driven primarily by the 
U.S., Brazil and Guyana.

   While Venezuela accounts for less than 1% of global supply at around 1.1 
million bpd, according to OPEC, its output could be further constrained by 
political, legal and production-related hurdles in the aftermath of Maduro's 
capture.

   "In the immediate aftermath, we could have the market moving higher as it 
prices in the risk of Venezuelan production being suspended or lost as the 
nation reacts to the political impact of the whole development," John Kilduff, 
partner at New York energy hedge fund Again Capital, told DTN.

   WTI could drop back to the low $50s bbl if U.S.-Venezuelan collaboration 
could expeditiously result in higher production, Kilduff said, noting that 
political realities stated otherwise.

   Although U.S. officials claimed that cooperation exists with Venezuela, the 
country's acting President Delcy Rodrguez insists that her country will never 
become a colony of the U.S.  The defiance underscores the rift between the two 
sides, potentially stalling the recovery of Venezuelan energy infrastructure 
despite the presence of American assets on the ground.

   Most Gulf Coast refinery infrastructure was specifically engineered to 
process heavy, sulfur-rich grades from Venezuelan, which in the past accounted 
half of U.S. imports. These sophisticated facilities require dense feedstocks 
to maximize margins, making the proximity and chemical profile of Venezuelan 
crude industrially indispensable for regional fuel production.

   The NYMEX WTI contract for February delivery was up $1.04, or 1.8%, at 
$58.36 bbl. ICE Brent for March delivery rose $1.05, or 1.7%, to $61.80 bbl.

   Refined product futures mirrored the upward trend in crude, with front-month 
ULSD for February delivery climbing $0.0269 to $2.1420 gallon.  February RBOB 
futures added $0.0201 to $1.7465.

   The U.S. Dollar Index provided a further tailwind to crude prices by 
dropping 0.173 points to 97.985.




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