The oil market went down on Monday as investors balanced disruptions linked to escalating US-Venezuelan tensions with oversupply concerns and the impact of a potential Russia-Ukraine peace deal.
Brent crude futures lost 56 cents or 0.92 per cent to sell for $60.56 a barrel and the US West Texas Intermediate (WTI) crude futures depreciated by 62 cents or 1.08 per cent to close at $56.82 a barrel.
The market is closely monitoring developments and their impact on oil supply, with Reuters reporting that the US plans to intercept more ships carrying oil from Venezuela following the MV Skipper tanker seizure last week, intensifying pressure on Venezuelan President Nicolas Maduro.
Venezuela’s oil exports have fallen sharply since the US seized a tanker last week and imposed fresh sanctions on shipping companies and vessels doing business with the South American oil producer.
However, despite this development – ample oil supplies continues to go China which is Venezuela’s biggest oil buyer. This is in addition to plentiful global supplies and weaker demand which are capping some of the impact of supply disruptions tied to the tanker seizure.
China has been stockpiling crude oil at a daily rate of around 1 million barrels this year. It has also been building new storage capacity. This year and next will see a total of 11 new storage sites built across the country, with a combined capacity of some 169 million barrels. By building new storage capacity, the world’s largest importer can keep buying more crude.
Pressure also mounted on the market over progress in the US peace talks to resolve the 46 months war between Russia and Ukraine. The Ukrainian President Volodymyr Zelenskiy has offered to drop his country’s aspiration to join the NATO military alliance, one of the reasons Russia says it attacked the sovereign nation in 2022.
A possible peace deal could eventually increase Russian oil supply, which is currently sanctioned by Western countries.
Adding to pressure, China’s factory output there slowed to a 15-month low in November, while retail sales grew at their weakest pace since December 2022.