Oil and Gas

US oil boom may cushion any Venezuelan supply shock


The wave of supply generated by the U.S. oil boom will help cushion any possible disruption from Venezuela if political unrest in Latin America's largest crude oil exporter escalates, energy strategists told CNBC this week.

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The effect of current outages in Libya and South Sudan, combined with the perceived threat to supply from Venezuela, is keeping global markets on edge and prices well-supported. But an improved global supply buffer implies any build-up of the risk premium will be limited, they said.

Venezuela is a key supplier of crude oil to growth markets in Asia, and holds the world's largest oil reserves, but cargoes destined for the U.S. have dwindled. The current spate of political turmoil in the Organization of Petroleum Exporting Counties (OPEC) producer hasn't yet affected supply as anti-government protesters have so far refrained from disrupting operations at oil fields and terminals.

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"A geo-political risk premium in crude oil prices related to Venezuela is likely non-existent at present," said UBS commodity strategists Giovanni Staunovo and Dominic Schnider in an email to CNBC on Saturday. "This could change at any time considering OPEC's spare capacity is between 2.5 and 3.0 million barrels a day and Venezuela produced 2.5 million barrels a day in January. A loss of a large share of this capacity would not pass crude oil prices unnoticed."

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If supply outages do occur, strategists are not ruling out a market impact but any move higher isn't likely to be comparable to the price spikes that took place before the advent of the U.S. shale boom, which has boosted supply from outside of OPEC.


Venezuelan exports of crude and petroleum products to the U.S. averaged 792,000 barrels a day in the first 11 months of 2013, marking the lowest annual rate since 1985, according to the U.S. Energy Information Administration's website.

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That said, Venezuela remains in the top five league of exporters to the U.S. and may yet pose a risk, said Carl Larry, president of Houston-based consultancy Oil Outlooks and Opinions. "Any interruption of this supply could create a spike," Larry said. "Especially since the Venezuelans have been major suppliers of medium and heavy crude."

Brent crude last week gained for the second straight week while its U.S. counterpart climbed for the sixth week in its longest winning streak in more than a year.

Oil boom sustainable: Pro

Market professionals are not fully convinced about the sustainability of the recent rally, CNBC's expanded weekly sentiment survey shows, though the bulls narrowly have an edge.

Forty-five percent (9 out of 20) of those polled expect gains to extend this week, 35 percent (7 out of 20) expect a pullback while 20 percent (4 out of 20) are neutral.

Data from IG markets suggests investors make opt to take some profits after the run-up. Almost three-quarters of as much as 500 IG clients holding open positions in the market expect U.S. crude futures to fall, while 79 percent of the firm's clients with open positions in Brent crude also expect a move lower.

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Brent crude on Monday settled 79 cents higher at $110.64 a barrel after production outages in Libya and South Sudan curbed exports and tightened global supply. U.S. oil was up 62 cents to $102.82, after climbing more than $1 earlier in the session.

But U.S. oil dipped 17 cents in early trade to $102.65 a barrel, but that followed larger gains overnight on expectations that supplies would continue to drain from the benchmark delivery point for the U.S. oil futures contract, Reuters reported.

By CNBC's Sri Jegarajah. Follow him on Twitter @cnbcSri