Trade Wars And Shutdowns

Trade wars and government shutdowns weigh on the oil prices as we head into shoulder season. The weak demand period is allowing the market some space as the risks to supply are still running very high. As of now, there is no real answer for a scenario of an extended loss of supply from Venezuela. The heavy crude prices continue to rise as refiners need the mix of the heavy to keep the globe supplied with the products it will so desperately need. Reuters shows how the market for heavy is tightening by reporting that Middle East oil benchmarks Dubai and DME Oman have gone above prices for Brent crude, an unusual move as U.S. sanctions on Venezuela and Iran, along with output cuts by OPEC, tighten supply of medium to heavy sour oil.

There are reports that Russia is working with Venezuela to hide oil revenue from the world market, trying to cause havoc in this part of the globe. Reuters reports that Venezuela’s state-run oil company PDVSA is telling customers of its joint ventures to deposit oil sales proceeds in an account recently opened at Russia's Gazprom bank AO, according to sources and an internal document seen by Reuters on Saturday. PDVSA's move comes after the United States imposed tough, new financial sanctions on Jan. 28 aimed at blocking Venezuela's President Nicolas Maduro's access to the country's oil revenue. 

Of course, there are still overriding concerns about the demand side as talks between democrats and republicans have finally broke down, rising the odds of another government shutdown. Fox News reported that “With less than a week to go until another potential partial federal government shutdown begins on Friday, bipartisan compromise talks on funding for President Trump's proposed border wall have completely broken down, sources tell Fox News. The sudden development again raised the possibility that Trump will declare a national emergency to access previously appropriated funds to initiate construction on a border wall. The White House agreed to a temporary spending bill late last month to end a historic 35-day government shutdown, although Trump said at the time that the move was not a "concession" and that he would not relent on his demands for a wall. "Talks have broken down because Senate Republicans are refusing to compromise on limits to the Trump administration’s cruel immigration policies," a senior Democratic aide told Fox News on Sunday. "A deal that includes new physical barriers must also include limits on the number of ICE detention beds. If Senate Republicans won’t compromise with us on both, we can’t reach a deal.” Added a GOP source: "The wall is a red herring for the Democrats. We got stuck on an interior enforcement cap." Such a cap would effectively limit ICE's ability to house illegal immigrants caught domestically by reducing the number of available beds in detention centers. The goal, Democrats say, is to force the Trump administration to prioritize arresting and deporting only violent criminals and dangerous offenders. Fox News is told if negotiators can’t resolve the situation soon, they are likely looking at trying to pass another temporary continuing resolution to try to avoid a shutdown.

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