Oil prices slide on swelling United States supply, global market slump

Image of daily change for major financial markets

Image of daily change for major financial markets

U.S. West Texas Intermediate crude oil futures are trading higher on Friday, however, the market is still in a position to close lower for the week.

Geneva-based Petro-Logistics said on its website that Iranian crude and condensate exports in December "fell steeply" from November to less than 1 million barrels per day (bpd) due to US sanctions - lower than some other estimates. But that's all expected to change this year as gasoline stockpiles surge, and a shortage of heavy crude from Venezuela wouldn't make refiners' lot any easier.

The U.S. also threatened to impose sanctions on Venezuela's oil industry that could further hobble the country's exports. The fortress-like US embassy on a Caracas hilltop may become a flashpoint after Maduro's order for American diplomats to evacuate was ignored.

Those differentials have narrowed since the government of Alberta announced last month it would impose crude oil production curtailments of 325,000 bpd starting January 1.

However, global oil markets are still well supplied, mainly attributed to surging output in the United States, where crude production rose by more than 2 million barrels per day previous year to a record 11.9 million bpd. If the Trump administration pulls the trigger on energy sanctions, those declines could balloon to several hundred thousand more barrels, says Helima Croft, global head of commodity strategy at RBC.

Venezuelan output has been hampered by chronic under investment by the nationalized oil company Petroleos de Venezuela SA (PdVSA).

Still, the long-term trend is a declining dependence on Venezuelan oil.

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The Latin American nation has already seen its output drop 50 percent in five years, to the lowest in more than a decade, as a spiraling economic crisis takes its toll on oil infrastructure and workers.

Of apparent less concern to traders was news from Baker Hughes that USA drillers added 10 oil rigs in the week to January 25, bringing the total count to 862 - the first increase in the number of operating rigs this year - however, like the Venezuela issue, this news may have a delayed reaction that could play out in coming days. Those sanctions faced opposition from Republican lawmakers representing Gulf Coast states, where refineries process heavy crude into fuels.

With the USA considering sanctions against Venezuelan crude, there's little doubt that Gulf Coast refiners would look north to Canada to fill the gap.

EIA reported a almost 8M barrel build during last week.

The problem is that even though USA oil production has skyrocketed to record highs, America is not self-sufficient. The threat to reduce supplies supported futures prices.

Global oil markets are still well supplied, however, thanks in part to surging output in the U.S. Gulf Coast refiners can't operate on United States shale oil alone.

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