Venezuelan oil could spend weeks stuck in diplomatic limbo as at least 7 million barrels are stranded at sea according to Reuters data, with some buyers unclear on who to pay for it or trying to pay into escrow accounts that have not yet been set up. Sixteen European nations have joined the United States in recognizing Juan Guaidó as Venezuela's interim president of Venezuela, putting more pressure on Nicolas Maduro, who is now calling for new elections.

Buyers of Venezuelan crude are stymied and do not want to commit to paying for the crude oil until they know they are paying the right people. Reuters says that U.S. customers of Venezuela’s state-run PDVSA are required by sanctions to deposit payments into escrow accounts that have not yet been set up. The funds will be controlled by Venezuelan congress head Juan Guaidó , whom the United States, the European Union and much of Latin America recognize as the country’s leader.

This oil, lost in limbo, will create issues for U.S. refiners that need more heavy oil to run refineries. If this does not get settled soon, or if we see Venezuela production continue to plunge, it could create tight supply for products and jack up prices, especially for diesel. The only positive side to this is that many refiners are heading into maintenance so there may be time for the accounts to be set up. The other concern is that those ships out at sea may be the last that we see out of Venezuela as their production continues to fall.

 Oil production in Venezuela could fall to under 1 million barrels a day and even further in the coming weeks. As Chavez and Maduro spent years pillaging the Venezuela oil giant, the lack of investment could mean that it would take years to get Venezuelan oil production back to its former glory, even if Maduro is ousted tomorrow.

Oil did dip yesterday after Genscape reported a 900,000 barrel increase in Cushing Oklahoma and a weak factory order number. Yet, this week is really going to be more about the Gulf Coast and a view of the impact of deep OPEC production cuts. While OPEC is doing its share, the Russians are taking their time to comply.

Bloomberg News reported that Russia’s oil producers may take longer than expected to achieve the production cuts the country agreed to under the OPEC+ deal. The nation “is fully complying with obligations in line with earlier announced plans to gradually cut output by May,” the Energy Ministry said Monday in a statement, citing its head Alexander Novak. Earlier, ministry officials including Novak said on several occasions that Russia aims to curb its oil production by 228,000 barrels a day from the October baseline within the first quarter and to keep volumes capped in the second.

 Oil is on a verge of a potential major breakout on the upside. We get the API report tonight and how that comes out could be a major factor. The reverse head and shoulder pattern along with the very bullish fundamental outlook from both supply reduction side and better than forecast demand means there is significant upside risk in prices.