Nicolas Maduro together with Socialist Party Vice-President Diosdado Cabello (R) next to a portrait of Hugo Chávez.
Oil prices moved a leg higher on Wednesday, extending the prior day’s gains after reports Venezuela may not deliver some of its contracted crude oil exports amid political upheaval.
Production and exports in Venezuela have recently been hit hard by political instability. That in turn has limited global supply, helping the Organization of the Petroleum Exporting Countries hit its target for reduced output faster than expected.
Venezuela’s state-owned PDVSA is now reportedly considering declaring force majeure on some contracts with crude oil buyers, essentially declaring they cannot be fulfilled as output from its oil fields has tanked and bottlenecks are slowing down exports at the ports.
“As things stand, the situation is clearly reaching crisis point and has left the embattled Latin American producer staring into the abyss. The end game for Venezuela’s oil troubles is fast approaching, and when it does, price fireworks will be the order of the day,” said Stephen Brennock, oil analyst at PVM Oil Associates, in a note.
West Texas Intermediate crude CLN8, -0.99% for July rose 11 cents, or 0.2%, to $65.62 a barrel, adding to a 1.2% gain from Tuesday that ended a three-session skid. August Brent crude LCOQ8, -0.36% , the global oil benchmark, added 52 cents, or 0.7%, to $75.90 a barrel.
Concerns about the Venezuelan supply drop, and about potential export disruption in Iran, have sparked speculation that oil demand will significantly outstrip supply and create a spike in prices.
The threatened shortfall has added pressure on OPEC and its partners, led by Russia, to increase production targets when they gather for a meeting in Vienna on June 22-23. In an unusual demand, the U.S. government has reportedly asked OPEC kingpin Saudi Arabia and other cartel members to increase their oil flow by around 1 million barrels a day, to keep a lid on rising oil prices.
Reuters reported in late May that the major oil producers were considering increasing output by 1 million barrels to plug the gap from Venezuela. That sparked a selloff in the oil market, with Brent losing sight of the $80 handle and WTI moving back below $65 a barrel.
However, traders shouldn’t be so discouraged by the prospect of a rise in OPEC production, according to Jeff Currie, head of commodities research at Goldman Sachs.
“Everybody is all bearish about the recent announcement of a million barrels per day extra supply, but the market needed it. It not only needs it, it is mandatory. Otherwise you just drive the bus off a cliff,” he said at the S&P Global Platts’ annual crude oil summit in London on Tuesday.
On Wednesday, traders were also waiting for the weekly supply data from the U.S. Energy Information Administration, due for release at 10:30 a.m. Eastern Time.
In other energy products on Wednesday, July gasoline RBN8, -1.61% climbed 0.3% to $2.11 a gallon, while heating oil for the same month HON8, -0.59% added 0.7% to $2.16 a gallon.
Natural gas for July NGN18, -0.21% rose 0.5% to $2.90 per million British thermal units.