By Peter Nurse
Investing.com - Oil markets pushed upwards Wednesday, hitting three week highs, after the U.S. sanctioned a trading subsidiary of Russia's largest oil producer for helping transport Venezuela's oil to refineries in India and China.
AT 06:40 AM ET (1340 GMT), U.S. crude futures traded 1.6% higher at $53.12 a barrel and the international benchmark Brent contract rose 1.6% to $58.69.
The decision of the U.S. government to blacklist the trading brokerage owned by Russia oil giant Rosneft may well have been part of its campaign to pressurize the Maduro regime in Venezuela, but it has also shifted the market’s focus back to supply threats after many weeks of the centre of attention being the damage being done to Chinese demand from the coronavirus outbreak.
“Given that these sanctions relate to a unit of Rosneft, rather than the parent company or any other subsidiaries, it is still uncertain how much of an impact this will have on oil flows, with it unclear how much oil and product is traded through the sanctioned unit,” said analysts at ING, in a research note. “However, this uncertainty does seem enough to at least offer some support to the market for the time being.”
Adding to this is the ongoing conflict in Libya. There had been talk that the resumption of peace negotiations was possible in the near term, but Libya's internationally recognized Prime Minister Fayez al-Serraj said Wednesday that shelling from eastern factions trying to take Tripoli put paid to that.
This suggests that oil supply disruptions from Libya will continue, with the export blockades likely to remain in place. The Libyan National Oil Corporation reported that current oil output in the country is just 123.5 million barrels a day, down by around one million barrels a day since the start of the blockade.
“It is the uncertainty around when Libyan supply could return to the market that makes it difficult for OPEC+ to agree on the level of production cuts needed to keep the market in balance,” ING added.
Attention will now turn to the American Petroleum Institute, which is due to release its weekly estimate of U.S. supplies of crude and refined products at 4:30 PM ET, against a backdrop of expectations for an increase of 3.77 million barrels in crude inventories.
The Energy Information Administration will report its figures on Thursday, a day later than usual due to Monday’s federal holiday.