The decline in Venezuelan standards of living, combined with its continuous decline in oil output has been phenomenal: production now stands at approximately 1 million barrels per day, a more than 70% reduction since the Hugo Chavez days where production stood close to 3.5 million barrels per day, and the lowest level since the 1940s.
The Trump administration told USA energy companies it could impose Venezuela oil sanctions as soon this week if the political situation there deteriorates further, Reuters Venezuela tweeted Wednesday , citing sources. Venezuelan output has collapsed by 50 percent in the past five years to about 1.2 million barrels a day, according to Bloomberg data.
Venezuelan oil is predominantly heavy crude, which requires extensive refining.
India continues to trade with Venezuela-a key crude oil supplier to the Asian nation where oil demand is growing fast-despite the ongoing crisis in Venezuela, India's Financial Express reports.
Amid violent street protests, Venezuela's opposition leader Juan Guaido declared himself interim president earlier this week, winning backing from Washington and large parts of Latin America, prompting Nicolas Maduro, the country's leader since 2013, to break relations with the United States.
The bearish sentiment appeared to outweigh the possibility that turmoil in Venezuela may lead to tighter global supply if the United States imposes sanctions on Venezuelan exports. This would be perceived as positive news for the world supply of crude oil, which could likely push prices lower. US West Texas Intermediate (WTI) crude futures were at $52.44 per barrel, 18 cents lower from their last close.
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USA refineries that depend on Venezuela's heavy crude would have even more trouble securing supplies as Canadian and Mexican crudes are often not as discounted and are limited in availability.
"The crisis in Venezuela appears to be reaching a crescendo" with significant consequences for the oil market in both the short and long term, said Helima Croft, chief commodities strategist at RBC Capital Markets LLC in NY.
A report from Rystad Energy says that U.S. oil production is likely to increase in the coming years.
"Forcing Venezuela into the spot market to dump prompt crude puts them in a corner".
Refineries along the Gulf Coast are set up to process heavy crude and they may end up spending more money buying it elsewhere.
The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, started supply cuts late past year to tighten markets and buoy prices.
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The International Monetary Fund reports that the country's GDP has fallen by 37 percent in the last few years with inflation in danger of running beyond 10 percent this year. Right now, it's anyone's guess whether the situation in Venezuela will offer the cartel a helping hand by mildly curbing supply, make its job even harder by adding more crude to the market, or upend its plans altogether and force a reversal of its cuts to prevent an oil-price spike.
USA refiners "will need to hustle to secure alternate foreign crude oil supplies to replace short-haul Venezuelan heavy sour with Mexico and the Middle East such as Iraq and Saudi Arabia being the most logical replacements", said John Driscoll, the chief strategist at JTD Energy Services Pte Ltd.
A possible move by President Donald Trump to hurt Venezuela's oil industry could prove a shot in the arm for the Xi Jinping and Narendra Modi administrations. The U.S. Energy Information Administration' official figures will be released later Thursday.
That standoff is likely to underpin crude oil prices.
Last fall, Canadian shipping constraints to the US led to a backlog of oil and steep discounts on Alberta crude.
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