Oil Drops as US Plans to Ease Sanctions on Venezuela

By Adedapo Adesanya

Oil went south on Tuesday as the United States indicated that it will begin to ease some energy sanctions on Venezuela, causing the Brent crude to fall by 1.57 per cent or $1.79 to $112.50 per barrel with the US West Texas Intermediate (WTI) crude dropping 0.7 per cent or 80 cents to $113.40 per barrel.

US President, Mr Joe Biden, will authorize American oil company, Chevron Corp, to negotiate with Venezuelan President Nicolas Maduro’s government, temporarily lifting a ban on such discussions.

The first step will allow Chevron, the last major US oil company still operating in Venezuela, to negotiate its license with state-owned oil company PDVSA to continue operations in the country.

The US has for months been in talks with the Venezuelan government and opposition leader, Mr Juan Guaidó about moving toward a political settlement following Maduro’s contested election victory in 2019, which the US did not recognize as legitimate.

The decision to ease some US energy sanctions on Venezuela came at the request of the country’s opposition and at a time the US has been looking for ways to allow Venezuela to begin producing more oil and selling it on the international market, thereby reducing the world’s energy dependence on Russia.

Venezuela holds the largest proven oil reserves in the world. A relaxing of sanctions could unleash another 400,000 barrels per day at a time when global crude oil consumers are scrambling for less expensive crude.

Also, the market relaxed after European ministers failed on Monday in their effort to pressure Hungary to lift its veto on the proposed Russian oil embargo.

However, some diplomats now point to a May 30-31 summit as the moment for agreement on a phased ban on Russian oil.

In China, Shanghai achieved its long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones. However, most residents must put up with confinement for a while longer.

The American Petroleum Institute (API) reported a draw this week for crude oil of 2.445 million barrels, compared to analyst predictions of a 1.533 million barrel build.

The draw comes even as the US Department of Energy released 5 million barrels from the Strategic Petroleum Reserves in the week ending May 13.

The market will await official data from the US Energy Information Administration (EIA) due on Wednesday to confirm the outcome.