Oil Rises as World Grapples With Venezuelan Crude Output Risks

Oil settled at a fresh three-year high in New York as the International Energy Agency opened discussions with major oil-producing nations about collapsing output from Venezuela, home to the world’s biggest petroleum reserves.

The crisis in Venezuela deepened after President Nicolas Maduro’s victory in widely-criticized elections was followed by a U.S. prohibition on buying debts owned to the government or state-owned oil company PDVSA. will intensify against the nation’s already-crippled energy industry. At the same time, cooling tensions between the U.S. and China eased concern about a trade war that would squelch energy demand in the world’s largest economies.

The deescalating trade rift “is definitively a positive element for the story here as the Chinese tend to purchase a lot of oil and gasoline and LNG,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York.

Oil is on track for its third monthly gain as OPEC-led production limits, Middle East conflicts and Venezuela’s downward spiral imperiled global supplies. Prices have also been buoyed by President Donald Trump’s withdrawal from a 2015 Iranian nuclear accord and the re-imposition of sanctions against the No. 3 producer in the Organization of Petroleum Exporting Countries.

“Venezuela is the major risk for the oil markets for the next weeks or months to come,” IEA Executive Director Fatih Birol said in a Bloomberg TV interview in Istanbul.

Prices for forward Brent crude contracts have rallied in recent weeks as traders bet that growing oil consumption coupled with a lack of upstream oil investment is signaling the end of the "lower for longer" thesis.

Meanwhile on Sunday, U.S. Treasury Secretary Steven Mnuchin said that the U.S. was “putting the trade war on hold” amid talks with China. On Monday, White House economic adviser Larry Kudlow said that exports of liquefied natural gas could benefit from a commitment from China to increase purchases of American goods.

West Texas Intermediate for June delivery, which expires on Tuesday, climbed 96 cents to $72.24 a barrel on the New York Mercantile Exchange. Total volume traded was about 18 percent below the 100-day average.

Brent futures for July settlement rose 71 cents to $79.22 on the London-based ICE Futures Europe exchange, and traded at a $6.87 premium to WTI for the same month. The arbitrage closed below $7 for the first time in more than a week.

Yuan-denominated futures dropped 0.8 percent to 482.4 yuan a barrel on the Shanghai International Energy Exchange.

Other oil-market news:

• Bonny Light crude cargoes loading for remainder of May and June have been delayed by 2-7 days each
• WTI Midland oil discount seen at least $10/bbl for most of 2019
• Gasoline futures for June delivery climbed 1 percent to $2.2565 a gallon, while diesel rose 0.4 percent to $2.2738.
• Iran said it has strategies to replace customers who halt oil purchases and it will use new methods to maintain its level of global crude supply, oil-ministry news service Shana reported, citing a spokesman for the parliament’s energy commission.
• Citigroup Inc. raised its base-case 2018 oil-price forecast by $10 to an average of $75 a barrel, analysts including Ed Morse said in an emailed report Monday.

— With assistance by Sharon Cho, and Guy Johnson