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Oil hovers near $52 as slowing global growth outweighs Venezuela sanctions

Oil has rallied this year as the OPEC+ coalition started a fresh round of output cuts to ease a glut, with Saudi Arabia pledging to pump below the limit it agreed in December

Sharon Cho | Bloomberg 

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Oil held near $52 a barrel as renewed concern over slowing global growth largely outweighed US sanctions against Venezuela’s state oil company.

Futures were little changed in New York after dropping 3.2 per cent in the previous session. The Donald Trump administration issued new sanctions on Venezuela’s PDVSA that effectively block the regime of President Nicolas Maduro from exporting crude to the U.S. On Monday, more American companies warned of slowing growth in China and elsewhere, while more talks on trade between the U.S. and China are scheduled this week.

Oil has rallied this year as the OPEC+ coalition started a fresh round of output cuts to ease a glut, with Saudi Arabia pledging to pump below the limit it agreed in December. Still, price gains have been capped by record U.S. output, expanding inventories and trade tensions with China. It’s still unclear what effect political turmoil in Venezuela will have on crude markets, Saudi Energy Minister Khalid Al-Falih said.

“The issues surrounding the Venezuelan situation have already been priced in to some extent,” said Sungchil Will Yun, a Seoul-based commodities analyst at HI Investment & Futures Corp. “The impact is seen limited” because so far the U.S. hasn’t called for wider sanctions such as those on Iran, he said.

West Texas Intermediate crude for March delivery rose 16 cents to $52.15 a barrel on the New York Mercantile Exchange at 11:38 a.m. in Singapore. The contract fell $1.70, or 3.2 per cent, to close at $51.99 a barrel on Monday.

for March settlement increased 13 cents to $60.06 a barrel on the London-based ICE Futures Europe exchange. It broke below $60 for the first time in almost two weeks on Monday, dropping $1.71 to $59.93. The global benchmark crude was at a $7.90 premium to WTI.

Sanctions on Venezuela

US President Trump assailed Maduro in a letter to Congress explaining an executive order he issued sanctioning PDVSA and Venezuela’s central bank. The action would bolster National Assembly leader Juan Guaido, recognized by Washington as Venezuela’s rightful president. Guaido said Monday he would take control of Venezuelan accounts abroad and appoint new boards to PDVSA and its Houston-based subsidiary Citgo Petroleum Corp.

Refineries in China and India are the only ones that can process Venezuelan crude outside the U.S., according to Eurasia Group analyst Risa Grais-Targow. PDVSA will have to “deeply discount” its oil to displace Middle Eastern crudes in those countries, she said.

Meanwhile, microchip-maker Nvidia Corp. and heavy-equipment giant Caterpillar Inc. were the latest companies that sent a gloomy outlook for demand in China. At the same time, American prosecutors filed criminal charges against Huawei Technologies Co., China’s largest smartphone maker, reminding investors the U.S.-China tensions were deep-seated.

First Published: Tue, January 29 2019. 10:30 IST