Crude fell after the U.S. government announced plans to allow Chevron Corp. to negotiate its oil license with the Venezuelan national producer.
West Texas Intermediate fell below $113 on Tuesday. The Biden administration will calibrate its sanctions policy with the aim of promoting dialogue with Venezuela, a US official told reporters. The Treasury allows Chevron to negotiate its license with PDVSA, but no more drilling or increased revenue for the regime is allowed. Futures extended their slide late in the session, with Federal Reserve Chairman Jerome Powell saying he would not hesitate to raise rates above neutral if needed.
Proposed changes to ease some sanctions on Venezuela “should be seen as a positive development, but should not be confused with immediate relief from the tight market we are experiencing in real time,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.
Oil has risen more than 50% this year in extremely volatile trade as the war in Ukraine has tightened supplies, while demand outside virus-hit China has increased. Global supply remains tight, with the European Union considering a ban on Russian crude and OPEC+ strongly opposed to accelerating production increases.
Consumers are already feeling the pain at the pump, with transportation fuel prices rising around the world. Average U.S. retail gasoline prices topped $4.50 a gallon for the first time, according to the AAA auto club, just weeks before the summer driving season. This comes amid widespread tension in petroleum product markets around the world.
The Associated Press earlier reported the Chevron news.
The United States will suggest tariffs on Russian oil as an alternative to embargoes, Reuters reported, a mechanism designed to keep the country’s supplies on the market while limiting Moscow’s revenue. A European Union proposal to ban imports of Russian crude has been delayed due to opposition from Hungary, which said the move would cost at least $810 million.
In China, meanwhile, Shanghai reported no new Covid-19 infections in the wider community for a third consecutive day, passing a crucial milestone that authorities say will allow them to start lifting punitive restrictions. . Still, part of Beijing’s Fengtai district will be locked down in some areas for seven days, underscoring the country’s continued fight against the virus.
- WTI for June delivery fell $1.80 to settle at $112.40 a barrel in New York.
- Brent for July settlement fell $2.31 to settle at $111.93 a barrel.
U.S. crude inventories at a key storage facility in Cushing, Oklahoma, have shrunk by about a quarter this year. Delivery point holdings of benchmark U.S. futures contracts likely fell by around 2.629 million barrels in the week ending May 13, traders said, citing data from consultancy Wood Mackenzie Ltd.
“We are entering uncharted territory in rough stocks,” said Peter McNally, global sector head at Third Bridge. “It is difficult to implement these bans at a time when demand is recovering normally and stocks are low.”