Oil prices settled at a two-week low on Monday, then edged higher by in electronic trading after the U.S. Treasury unveiled sanctions on Venezuela’s state-owned oil firm, Petróleos de Venezuela SA.
Prices had fallen during the regular trading session, reflecting fresh concerns over supply, and the potential for a slowdown in energy demand from China.
Monday afternoon, however, the U.S. Treasury sanctioned Venezuela’s oil firm, which is also known as PdVSA, raising the risk of disruptions to oil supply from the South American nation, which is home to the world’s largest oil reserves.
“The United States is holding accountable those responsible for Venezuela’s tragic decline, and will continue to use the full suite of its diplomatic and economic tools to support Interim President Juan Guaidó, the National Assembly, and the Venezuelan people’s efforts to restore their democracy,” Treasury Secretary Steven Mnuchin said in a statement. All property and interests in property of PdVSA subject to U.S. jurisdiction are “blocked and U.S. persons are generally prohibited from engaging in transactions with them.”
In electronic trading, West Texas Intermediate crude for March delivery US:CLG9 was at $52.18 a barrel, just after 4 p.m. Eastern time Monday. The contract had fallen by $1.70, or 3.2%, to settle at $51.99 a barrel on the New York Mercantile Exchange after losing 0.7% last week.
March Brent crude LCOH9, +0.32% was at $60.05 in electronic dealings after falling $1.71, or 2.8%, to $59.93 a barrel during the regular session on ICE Futures Europe. The contract lost about 1.7% last week.
Both benchmark contract saw their lowest settlements since Jan. 14, according to FactSet data.
As to whether the sanctions actually raise the risk of disrupting oil supply from Venezuela, James Williams, energy economist at WTRG Economic, said that answer is “yes and no.”
“If Venezuela is willing to continue to send shipments to the U.S. even though Maduro can not get his hands on the money there is no impact,” he said. “The money will go into an account to be released when Venezuela has a legitimate government.
“I suspect Maduro will attempt to sell the oil elsewhere,” said Williams. “The threat is Maduro’s reaction.”
Robbie Fraser, global commodity analyst at Schneider Electric, warned early Monday that the main risk to the oil market stemmed from the prospect of targeted sanctions from the U.S., which still imports a large share of Venezuela’s total oil exports. The U.S. is the primary destination for Venezuelan crude oil shipments, and receives about 41% of Venezuela’s total exports, according to the Energy Information Administration.
Self-proclaimed “interim president” Guaido is the biggest challenge to Maduro’s government in years. Guaido has urged the country’s powerful military forces to defect, promising them amnesty. Military envoy Jose Luis Silva was branded a “traitor” by Maduro after he defected from the government and urged other military officers to back the opposition leader.
Meanwhile, trade tensions between the U.S. and China appeared to worsen Monday, raising expectations for a slowdown in energy demand. China triggered the legal process for the World Trade Organization to hear its challenge to U.S. tariffs imposed on $234 billion of goods, according to a report from Reuters. Trade negotiations between senior officials from the two nations are set to begin this week in Washington.
Also pressuring prices during Monday’s trading session, Baker Hughes BHGE, -2.17% on Friday reported that the number of active U.S. rigs drilling for oil rose by 10 to 862 this week. That followed a hefty drop of 21 in the oil-rig count a week earlier.
The return to the higher oil-rig count indicates a “more moderate slowdown among U.S. shale producers over the near-term,” said Fraser.
In other related news, Saudi Arabia plans to pump about 10.1 million barrels of oil a day in February— well below the country’s voluntary limit of 10.33 million barrels a day, Saudi energy minister Khalid al-Falih said in an interview with Bloomberg Television.
Elsewhere in energy trading, February natural gas NGG19, +0.38% tumbled 8.4% to $2.911 per million British thermal units—the lowest since September. It ended last week about 8.7% lower but had climbed by 2.6% on Friday. The contract expires at Tuesday’s settlement.
WTRG Economics’ Williams said prices dropped as traders looked at longer-term weather forecasts, instead of the short-term forecasts calling for record-breaking cold for much of the country. “The brutal cold will be short lived,” he said.
Also on Nymex Monday, February gasoline RBG9, -0.03% fell 4.1% to $1.333 a gallon, while February heating oil HOG9, +0.29% dipped 2.9% to $1.838 a gallon.