Oil prices jumped on Wednesday as concerns about supply disruptions after the Trump administration’s sanctions on Venezuelan oil industry outweighed downward pressure of global economic outlook, Reuters reported.
International Brent crude oil futures were at $61.69 a barrel, surging 0.6 percent or 37 cents from the last settlement.
U.S. West Texas Intermediate (WTI) crude futures climbed 0.4 percent or 23 cents, to $53.54 per barrel.
In the previous session, the oil prices rose 2 percent, when markets first digested the U.S. sanctions against Venezuela’s oil exports.
On Monday, Washington announced export sanctions on Petroleos de Venezuela SA (PDVSA), a state-owned oil company that would limit transactions between American companies in business with Venezuela through fuel purchases and sales of refined goods, according to Reuters’ news.
Vanda Insights’ Vandana Hari said that the sanctions have been most disruptive for the U.S. Gulf Coast refiners who are being forced to look for heavy crude supply alternatives and have stepped up purchases from other nations such as Canada.
However, the Canadian oil exports would be restrained due to pipeline capacity bottlenecks, she added.
The sanctions is aimed at freezing sale proceeds through exports of approximately 500,000 barrels per day (bpd) of crude oil from PDVSA to the United States.
Although the move surged the prices of oil, markets remained relaxed as the sanctions only affect Venezuelan oil supply to the U.S.
Rather than eliminating the export volumes from the market, it will be rerouted to other countries, Rystad Energy’s analyst Paola Rodriguez-Masiu said.
As the United States drops out as a customer for Venezuelan oil, countries like India and China can pick the oil volumes at great discounts, she added.
On the other hand, some analysts said that the non-U.S. oil trading companies with operations in the U.S. may still avoid dealing with the Venezuela’s oil industry.
Several international oil traders have significant trading operations in the United States; at least in the short-term, they will undoubtedly stop purchasing from Venezuela until assured that they are not in conflict with the U.S. sanctions, according to the Schork Report on Wednesday.
In addition, other analysts pointed to slowing economy as supply-side efforts to tighten the market including the voluntary supply restraint by Organization of the Petroleum Exporting Countries (OPEC).
This year, fuel consumption as well as the global economic growth are expected to be slow amid escalating trade tensions between China and the United States, the two biggest economies in the world.