Oil rose from a four-and-a-half-year low after the US signaled tougher measures against Russia to spur a peace deal in Ukraine and declared a blockade of Venezuelan oil exports.
West Texas Intermediate futures climbed 1.2% to settle just below $56 a barrel on Wednesday, another day of relatively thin trading as the North American holidays and New Year approach.
Washington is considering options such as targeting Russia’s so-called shadow fleet of oil tankers and traders who facilitate such exports, in case Vladimir Putin rejects a proposed agreement with Ukraine, people familiar said.
US President Donald Trump also said Venezuela is “completely surrounded by the largest Armada ever assembled in the History of South America” as he embarked on an effort to blockade the country’s sanctioned oil flows.
The Venezuelan Navy is said to have escorted several ships carrying oil products overnight, the New York Times reported.
But while the escalation from Washington heightened risks, any impact on prices may be muted by an impending supply glut. Venezuela’s oil production has risen from its 2020 lows, but it is far from where it was decades ago. The country’s crude represents less than 1% of global supplies, with most going to China.
“Reaction has been muted, with the market viewing the impact at roughly 500,000 barrels a day — insufficient to shift the oversupply narrative,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group.
Oil remains on track for a yearly loss with supply expected to outpace demand both this year and next, primarily driven by OPEC+ returning idled output at a rapid rate and other producers pumping more. Signs of market weakness are emerging from the US and Canada to the Middle East, as investors brace for a surplus that the International Energy Agency predicts will be the biggest since the pandemic.
As those expectations continue pulling prices lower, traders mostly shrugged off a US government report on Wednesday showing rising domestic fuel inventories and a relatively small draw in crude stocks.
Trend-following commodity advisers are still 100% short in both Brent and WTI, according to data from Bridgeton Research Group, which was acquired by Kpler this week. “While the market rallied earlier in the morning, CTAs will need further validation of the price move before adjusting their stop-loss limit orders,” according to the company.
Oil Prices
WTI for January delivery gained 1.2% to settle at $55.94 a barrel in New York.
Brent for February settlement climbed 1.3% to settle at $59.68 a barrel.
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