Oil jumps over 1% on Venezuela oil blockade

Oil prices rose more than 1 percent on Wednesday after US President Donald Trump ordered “a total and complete” blockade of all sanctioned oil tankers entering and leaving Venezuela, raising fresh geopolitical tensions at a time of concerns over demand.

Brent crude futures were up 70 cents, or 1.2 percent, at $59.62 a barrel at 02:45 GMT, while US West Texas Intermediate crude rose 73 cents, or 1.3 percent, to $56.00 a barrel.

Oil prices settled near five-year lows in the previous session on progress in Russia-Ukraine peace talks, as a deal may see Western sanctions on Moscow eased, freeing up supply even as the market grapples with fragile global demand.

Trump on Tuesday ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela, adding that he now regarded the nation’s rulers as a foreign terrorist organisation.

The move could potentially impact 0.4-0.5 million barrels of oil per day, lifting prices by $1-2 per barrel, according to a US oil trader.

“In regard to pricing impacts, we should see the prompt physical premiums reacting more than flat price, especially natural Merey replacements in the Gulf Coast like Canadian and Colombian Castilla blends, though the total loss of supply would be less than 200,000 barrels per day for the Chevron equity cargoes,” said Matias Togni, an analyst at oil market insights firm Next Barrel.

Trump’s latest comments came a week after the US seized a sanctioned oil tanker off the coast of Venezuela, stepping up a pressure campaign on the government of Venezuelan leader Nicolas Maduro, who Trump has blamed for drugs entering the US.

Since the seizure, Venezuelan crude exports have fallen sharply.

It is unclear how many tankers would be affected and how the US will impose the blockade against the sanctioned vessels, and whether Trump will turn to the Coast Guard to interdict vessels like he did last week. In recent months, the US has moved warships into the region.

While many vessels picking up oil in Venezuela are under sanctions, others transporting the country’s oil and crude from Iran and Russia have not been sanctioned. Tankers chartered by Chevron are also carrying Venezuelan crude to the US under an authorisation previously granted by Washington.

Analysts say the oil market is well supplied for now, but if the embargo stays in place for an extended period, crude prices are likely to rise further.

“In the short term, an extreme price rally is unlikely unless there are any retaliatory actions that impact the wider Americas region’s oil and gas systems, while global supply glut expectations remain in the forefront of trading focus,” said Emril Jamil, a senior oil analyst at LSEG.

“But in the longer term, any prolonged disruption can be supportive of prices of heavy crude grades.”