Oil drops after US eases sanctions on Venezuela

Brent has risen nearly 8% since Hamas launched an unprecedented assault on Israel on October 7, leading to supply concerns

Gas is flared at state-owned oil company PDVSA in Jusepin, Venezuela. The US issued a six-month licence that temporarily authorised transactions involving Venezuela's oil and gas sector. Reuters

Oil prices fell on Thursday after rising about 2 per cent the previous day as the US eased sanctions on Opec member Venezuela amid supply concerns caused by the Israel-Gaza war.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.69 per cent lower at $90.87 a barrel at 6.32pm UAE time while West Texas Intermediate, the gauge that tracks US crude, was down 0.71 per cent at $87.69 a barrel.

On Wednesday, Brent settled 1.78 per cent higher at $91.50 a barrel while WTI was up 1.92 per cent at $88.32.

The US Treasury Department issued a six-month general licence on Wednesday that temporarily authorised transactions involving Venezuela's oil and gas sector after a deal was reached between the government and the country’s political opposition to ensure fair elections next year.

“The licence will be renewed only if Venezuela meets its commitments under the electoral road map, as well as other commitments with respect to those who are wrongfully detained,” the Treasury Department said.

If sanctions are lifted, Venezuelan oil output could increase from 2024.

“However, the potential expansion is hindered by the prolonged lack of investments in the industry,” Sofia Di Sante, senior oil market analyst, said in a research note this week.

“In the short term – six months after sanctions are lifted – production could only ramp up by a maximum of 200,000 barrels per day, a relative drop in the ocean on the global stage,” she said.

Last week, the International Energy Agency raised its 2023 demand forecast to 2.3 million bpd, from a previous estimate of 2.2 million bpd, citing “buoyant” demand growth in China, India and Brazil.

The oil market has been tight due to Opec+ output cuts and supply reductions of a combined 1.3 million bpd by Saudi Arabia and Russia.

Brent has risen by about 8 per cent since Hamas, the militant group that rules Gaza, launched an unprecedented assault on Israel on October 7.

Israel has retaliated with air strikes on Gaza and is gearing up for a ground offensive in the Palestinian enclave, home to 2.1 million people.

More than 500 Palestinians were killed in an air strike on a Gaza city hospital on Tuesday, leading to protests in several Middle Eastern countries.

While Palestinian health workers confirmed it was an Israeli strike, Prime Minister Benjamin Netanyahu's government has denied responsibility.

Meanwhile, US crude stocks, an indicator of fuel demand, decreased by 4.5 million barrels in the week that ended on October 13, according to the US Energy Information Administration.

Total petroleum inventories fell by 2.4 million barrels last week while distillate fuel stocks dropped by 3.2 million barrels, the EIA data showed.