Oil higher on Venezuela turmoil, uncertainty over OPEC output cuts

Crude prices climbed on Tuesday, building on a gain for the month, as the Saudis looked to defy President Donald Trump’s request to pump more oil and an uprising in Venezuela fed uncertainty over the country’s output.

“Crude prices first caught a bid after Saudi Arabia refuted Trump’s comments that OPEC will pump more,” said Edward Moya, senior market analyst at Oanda.

Meanwhile, Venezuelan opposition leader Juan Guaidó has called for an uprising with military support to overthrow President Nicolás Maduro. The Maduro administration has said it’s moving to put down what it called a coup attempt.

U.S.-based West Texas Intermediate crude for June delivery CLM9, +0.49% rose 24 cents, or 0.4%, to $63.74 a barrel on the New York Mercantile Exchange. Prices were poised for a monthly rise of 5.6%—their fourth straight monthly gain.

Global benchmark June Brent crude LCOM9, +1.10% which expires at the day’s settlement, rose 64 cents, or 0.9%, to $72.68 a barrel on ICE Futures Europe, with prices for the contract up more than 7% month to date. July Brent LCON9, +0.82% the soon-to-be front-month contract, traded at $71.79, up 25 cents, or 0.4%.

Saudi Arabia’s energy minister Khalid al-Falih told Russia’s RIA news agency that the kingdom won’t rush to raise oil supplies to make up for Iranian oil lost due to U.S. sanctions, Reuters reported Tuesday. He also said the Saudis will adhere to the production-cut agreement led by the Organization of the Petroleum Exporting Countries and may extend that agreement, which expires in late June, to the end of this year.

“The banter between the Saudis and President Trump is somewhat expected,” said Moya.

Oil contracts have moved in choppy fashion since late last week in the wake of Trump’s latest call on the Saudis and allies to boost crude production. OPEC Secretary-General Mohammed Barkindo said he hadn’t spoken with Trump, in contrast to what the U.S. leader had said. The Wall Street Journal reported that al-Falih wasn’t part of those talks either. Trump later tweeted that he had spoken to Saudi Arabia. “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement,” Trump tweeted Friday.

Meanwhile, the potential military uprising in Venezuela, “could be what is needed for oil to recover last week’s decline,” said Moya. “It is unclear if Guaidó has a significant amount of military support, but even if it is a small number of troops, it indicates he is making progress.”

“The country is in meltdown mode and it could be a matter of time before [Nicolás] Maduro is forced out or decides to flee” he said. “Oil remains vulnerable on Venezuela but once Guaidó takes over, we could see oil selloff sharply. If Guaidó gets captured, oil could rise a few dollars.”

Meanwhile, the Saudis may have some difficulty in finding an incentive to raise output. The Saudis need an oil price of about $85 a barrel to balance its budget this year, up from a forecast of $73 in September, Bloomberg reported, citing data from the International Monetary Fund.

And the oil industry may take issue with Trump’s claim that oil prices are recovering too much, too fast.

BP PLC said Tuesday its profit dropped by 12% in the first quarter due to a weaker oil price environment at the start of 2019, echoing anemic quarterly results recently reported by other Big Oil companies.

Elsewhere, May gasoline RBK9, +2.07% was up 0.9% to $2.101 a gallon, with the contract up more than 11% for the month. May heating oil HOK9, +1.43% added 0.6% to $2.067 a gallon, with prices looking at a monthly rise of nearly 5%. The May contracts expire at Tuesday’s settlement.

June natural gas NGM19, -0.35% fell 0.6% to $2.578 per million British thermal units.

Late Tuesday, the American Petroleum Institute will issue its weekly data on U.S. petroleum supplies, followed by the official government figures from the Energy Information Administration early Wednesday.

Analysts expect the EIA to report a rise of 1.4 million barrels in crude stockpiles for the week ended April 26, according to a survey conducted by S&P Global Platts. They also forecast supply declines of 1 million for gasoline and 1.2 million barrels for distillates.

MarketWatch

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya