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Oil gained on 4 Feb. over OPEC supply cuts and US sanctions against Venezuela. Higher crude dragged Asian refinery margins to lower levels, since 2010 (as per Refinitiv data). Output declined, mainly, due to sanctions against Venezuela and fall in US oil rig counts. Last week US energy firms cut the number of oil rigs to lowest in 8 months to 847. US imposed sanctions against Venezuela, which will limit oil transaction between Venezuela and other countries. The sanctions are similar to Iran but there is a difference where foreigners are restricted from doing business with the country. Since most such transactions involve US dollar, it can affect Venezuela’s efforts to get buyers from around the world.
Venezuelan Sanctions Impact
The country has been selling oil to India and Europe and it has been seeking buyers in other regions as well. It sells approx. 500,000 barrels a day to US and many European buyers were pulled back post-sanctions due to confusion over the method of payments. The sanctions target to force the current Venezuelan president Madurao to step down who rejected the new presidential poll and was sworn in for the second term as president after the disputed elections where the opposition leaders were not able to participate as they were boycotting or were in jail. US has been sending aid to Venezuela on the request of interim president Juan Guaido, who declared himself the president and has been backed by Russia, China and Turkey ,while, at least 20 countries have recognized him as the interim president of the country facing hyperinflation, economic turmoil and shortage of food and medicine.
OPEC Oil Supply Declines
OPEC oil supply lowered in January by one of the largest in two decades despite increase in production in the last year. The new fields drilling in Brazil and US Gulf of Mexico led to increase in oil production in the year from 700,000 bpd, which is expected to cross 10.3 million bpd in the year, as per Rystad Energy reports. There are many other countries venturing into deepwater production that include Nigeria, Norway and Angola.
The most competitive deepwater drilling has been used in US and Brazil, the Gulf of Mexico and Guyana. America is facing strained relationship with OPEC members where the Saudi crown prince Mohammed bin Salman and Abu Dhabi‘s Sheikh Mohammed bin Zayed - are not supporting US strategy in the Middle-East, where there is ongoing threat of US troop withdrawal. The Middle East strategy of US is unclear but the regions are significant. The recent tensions are related to the support by the Trump administration for the Saudi led military coalition which is fighting against the Hauthi rebels in Yemen.
The recent anti Saudi tweets by US President has added to confusion and fears. Political issues can push these countries towards Russia and China. America is expecting a resolution to be passed, which will end the US involvement in Civil war in Yemen.
To find out more about crude oil investment, check 99 Alternatives at (http://www.99alternatives.com).
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