Here Today Gone Tomorrow

Oil prices are rising because while oil supply is here today, it might be gone tomorrow. Not only do we have the real possibility of U.S. sanctions on Venezuelan oil, you have OPEC, led by Saudi Arabia working to drain excess supply. You also have warnings from a shale pioneer that U.S. shale growth could plummet. These worries had traders look past a bearish Energy Information Administration (EIA) status report that showed a nearly 8-million-barrel increase in crude supply, a 4.1-million-barrel increase in gasoline supply. Yet with the ongoing concerns over the possible loss of Venezuelan heavy oil, they reported a 600,000-barrel draw in distillates. The distillate fuel inventories look oh so much bigger, as refiners need heavy oil to beef up distillate supply that is currently about 2% below the five-year average.

Get Out of Venezuela. The embattled President Nicholas Maduro has told U.S. diplomats to leave and the U.S. government is warning that all Americans get out of Venezuela after the U.S. recognized Juan Guaido, president of the opposition-led National Assembly, as the rightful constitutionally elected President of Venezuela for a new presidential election. The AP reports that the U.N. human rights chief is calling for independent investigations into violence linked to protests in Venezuela, allegedly involving excessive use of force by security or pro-government forces that reportedly left at least 20 people dead. You see in a socialism system; your life is worth nothing if the people in power with the guns think you are not in the best interest in the state. You see in a socialism system; you are just a pawn that the government can dispose of if they think you’re not in their best interest. It is also in their best interest to keep all the food and medicine for the people who oversee the state because you need those people to be well feed and happy so they can decide whose life is expendable next.

U.S. sanctions may soon follow on Venezuelan oil. One question will be as to whether the sanctions are just U.S. sanctions, or the U.S. will force trade partners to join in. The FT reports today that  “One possibility is that the U.S. freezes assets through an executive order, as it did in Libya in 2011,”  quoting Francisco Rodríguez, chief economist at Torino Capital in New York. “PDVSA would then lose the ability to sell oil in the U.S. If Europe does something similar, it becomes very difficult for PDVSA to sell oil. Another option is for Mr. Guaidó to appoint a PDVSA or Citgo board. “U.S. courts would have to recognize those appointees,” Mr. Rodríguez said. “According to established jurisprudence in the U.S., the judiciary defers to the executive branch in matters of recognition of governments.” The Trump administration might consider “an extension of December’s executive order targeting the mining sector, or targeted oil sections”, said Risa Grais-Targow, director for Latin America at the Eurasia Group. “An all-out oil import ban is still on the table, but the U.S. is more likely to start with a milder option like a diluent ban.” Venezuela needs diluents to process its heavy crude oil and currently imports them from the U.S. The EU and the Lima Group nations might also consider further sanctions.

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