Oil Prices Fall Over $1 as Hopes for Venezuela Deal Rise and Middle East Crisis Stays Local
- Posted on October 17, 2023
- Business
- By Arijit Dutta
- 282 Views
Oil futures took a significant hit on Monday, with prices falling by more than $1 per barrel. This drop was driven by growing optimism that the United States and Venezuela might soon reach an agreement to ease sanctions on Venezuelan crude exports. At the same time, traders noted that the ongoing Israel-Hamas conflict did not seem to pose an immediate threat to oil supplies.
Oil futures took a significant hit on Monday, with prices
falling by more than $1 per barrel. This drop was driven by growing optimism
that the United States and Venezuela might soon reach an agreement to ease
sanctions on Venezuelan crude exports. At the same time, traders noted that the
ongoing Israel-Hamas conflict did not seem to pose an immediate threat to oil
supplies.
Brent crude futures settled at $89.65 per barrel, marking
a decline of $1.24 or 1.4%. Similarly, US West Texas Intermediate crude (WTI)
also decreased by $1.03, or 1.2%, concluding at $86.66 per barrel.
The long-standing political standoff between Venezuela's
government and opposition is showing signs of potential resolution, as both
sides announced their return to negotiations after nearly a year. Inside
sources also revealed that the United States has reached a preliminary
agreement to relax sanctions on Venezuela's oil industry in exchange for a
competitive and closely monitored presidential election in Venezuela next year.
This reported deal is seen as a potential catalyst to
boost Venezuela's oil output from its currently depressed levels. However,
experts like William Jackson, chief emerging markets economist for Capital
Economics, cautioned that significant investment would be required to restore
output to levels seen just a decade ago. In the near term, this development is
unlikely to have a substantial impact on the global oil market's deficit.
Last week, both Brent and WTI crude benchmarks
experienced a surge in prices due to concerns that the Middle East conflict
could escalate further. Brent saw a remarkable 7.5% gain, its highest weekly
increase since February.
However, Monday's decline in oil prices is interpreted as
a momentary pause, allowing market participants to assess events in the Middle
East. The expected increase in production from Venezuela is still a ways off,
primarily due to the deteriorating state of the country's energy
infrastructure.
Traders emphasized that the Israel-Hamas conflict, as of
Monday, appeared to be contained within the Gaza Strip and wasn't significantly
affecting crude oil supplies. John Kilduff, a partner with Again Capital LLC,
remarked that negotiations with Venezuela could result in increased crude oil
exports from existing inventories, but a surge in production would take time,
given Venezuela's energy infrastructure's poor condition.
Simultaneously, diplomatic efforts by the United States to broker a ceasefire in southern Gaza had failed, leading to intensified Israeli air strikes on Gaza. Russia has also entered the diplomatic arena, with President Vladimir Putin planning talks with Iran, Israel, Palestinians, Syria, and Egypt.
Also Read: President Biden's Israel Visit Aims To Defuse Gaza Crisis And Strengthen Ties
Heightened tensions in the Middle East may have
compounded other risk factors that drove oil prices higher the previous week.
Notably, the United States had imposed sanctions on the owners of tankers
carrying Russian oil that exceeded the Group of Seven's price cap of $60 per
barrel. This move aimed to close loopholes in the mechanism designed to cut off
Moscow's revenue from energy sales.
The sudden decision to tighten sanctions on ship owners
carrying Russian crude over the $60/barrel limit by the United States, along
with President Putin's statement about OPEC+ achieving 'stability,' contributed
to price increases at the end of the previous week.
In short, the drop in oil prices is linked to hopes for a US-Venezuela deal and the easing of Middle East tensions, particularly the Israel-Hamas conflict. However, the global oil market remains influenced by various factors, and the situation in Venezuela's oil industry requires substantial investment for a full recovery.