Oil climbs on Venezuelan crisis despite surging USA supply

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Though the United States produces almost 12 million barrels of oil a day, complex Gulf Coast refineries need heavier crude grades to produce diesel and other high-margin products, and can not simply sub in light crude.

Even news of possible USA sanctions against Venezuela - a development that ought to push oil prices higher - didn't help crude prices rebound.

Declining Venezuelan shipments have been underpinning demand for heavy Canadian crude for more than a year, even at the South American nation's own US refineries.

The International Energy Agency estimates Venezuelan reserves at 303.2 billion barrels, "but much of its oil is extra heavy, which is costly to extract", an IEA report said.

"It's a function of people keeping an eye on supply concerns out of Venezuela", said Marshall Steeves, energy markets analyst at Informa Economics IG in NY.

Brent crude oil futures were at $61.17 a barrel at 0955 GMT, up 8 cents, or 0.13 percent.

Venezuelan opposition leader Juan Guaido declared himself interim president Wednesday, a move immediately backed by a number of nations led by the U.S.

More turbulence in Venezuela - including the threat of United States sanctions on its crude oil exports - has Canada's oilpatch watching carefully for how the impact will ripple across the industry.

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Those deliveries are being made largely through oil-for-debt repayment structures as output from state-run oil company Petróleos de Venezuela, S.A., known as PDVSA, has slumped to near 70-year lows in a nationwide economic crisis.

The European Union is expected to launch a mechanism that would facilitate nondollar trade with Iran, circumvent USA sanctions, Reuters reported Wednesday , citing comments from diplomats.

"There's a lot of doubt in the market that Trump will pull the trigger on oil sanctions" aimed at Venezuela, said Joe McMonigle, a former Energy Department official under President George W. Bush.

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 USA sanctions - lower than some other estimates. Prices could plunge to $48.50 if this support level fails.

"Chevron operations in Venezuela continue and the company is committed to the country's energy development in compliance with all applicable laws and regulations", Chevron said in a statement. Separately, commodity traders Mercuria Energy Group Ltd. and Glencore Plc said OPEC supply cuts had set the stage for rising prices.

Any sanctions would come just as the global market for heavy crude is tightening. Gulf Coast refineries depended on Venezuelan heavy crude for about a quarter of its imports, according to data from the EIA. That's bad news for refiners on the U.S. Gulf Coast, but good news for Saudi Arabia, Iraq and other heavy-crude producers.

And Venezuela relies on United States products to keep its oil industry afloat.

This could raise competition for similar supplies pumped in the Gulf of Mexico such as Mars, which are not as dense and sulfurous as Venezuelan supplies but is closer in chemical characteristics than US shale oil.

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