Oil prices crept up on Tuesday after Washington imposed sanctions on Venezuelan state-owned oil firm PDVSA in a step set to severely curb the OPEC member’s crude exports to the United States.
U.S. West Texas Intermediate (WTI) crude futures were at $52.12 per barrel at 0351 GMT, up 13 cents, or 0.3 percent, from their last settlement.
International Brent crude oil futures were at $60.05 per barrel, up 12 cents, or 0.2 percent.
Despite the move, which comes as the U.S government looks to pile pressure on sitting President Nicolas Maduro to step down, traders said ample global oil supply and an economic slowdown especially in China were keeping crude prices in check.
Minutes before the announcement, Juan Guaido, the Venezuelan opposition leader who proclaimed himself interim president last week with U.S. backing, said congress would name new boards of directors to the company and its U.S. subsidiary, Citgo.
Guaido, supported by the United States and most countries in the Western Hemisphere, says Maduro stole his re-election and must resign to allow new, fair polls.
Maduro, in a live national broadcast on Monday, accused the United States of trying to steal U.S. refining arm Citgo Petroleum, the OPEC member’s most important foreign asset, which also manages a chain of U.S. gas stations. He said Venezuela would take legal actions in response.
In the first sign of serious retaliation, three sources with knowledge of the decision told Reuters that PDVSA had ordered customers with tankers waiting to load Venezuelan crude bound for the United States to prepay for the cargoes or they will not receive authorization to fill the vessels or leave the ports. [nL1N1ZS1UH]
The Trump administration sanctions stopped short of banning U.S. companies from buying Venezuelan oil, but because the proceeds of such sales will be put in a “blocked account,” PDVSA is likely to quickly stop shipping much crude to the United States, its top client.
“If the people in Venezuela want to continue to sell us oil, as long as the money goes into blocked accounts we will continue to take it, otherwise will we not be buying it,” Treasury Secretary Steven Mnuchin said at a White House briefing.
Oil at sea, already paid for, would continue its journey to the United States, he said. White House national security adviser John Bolton said at the briefing the measure would cost Maduro $11 billion in lost export proceeds over the next year and block him from accessing PDVSA assets worth $7 billion.
While there are significant exceptions, such as rules that should allow Citgo to keep using Venezuelan crude in U.S. refineries, the sanctions will likely cause some reordering of global oil flows as Venezuela seeks to sell elsewhere.
Venezuela has the world’s biggest proven oil reserves and is a member of the Organization of the Petroleum Exporting Countries (OPEC).
Despite its huge reserves, Venezuela’s exports declined to little more than 1 million barrels per day in 2018 from 1.6 million bpd in 2017, according to Refinitiv ship tracking data and trade sources.
The decline comes amid an economic crisis which has seen investment plummet, power and key equipment supplies disrupted, and salaries left unpaid.
The sanctions, contained in an executive order issued by U.S. President Donald Trump, freeze U.S.-based assets of PDVSA, Venezuela’s largest source of revenue.
The Trump administration had long held off on targeting Venezuela’s vital oil sector for fear that it would hurt U.S. refiners and raise oil prices for Americans. White House officials had also expressed concern about inflicting further hardship on the Venezuelan people.
The latest sanctions appear to seek to build on the momentum that has mounted in recent weeks against Maduro at home and abroad.
U.S. officials said the sanctions on PDVSA were intended to prevent Maduro’s government from siphoning off funds from the oil company to maintain his grip on power.
Mnuchin said oil supplies were sufficient to ensure no significant impact on U.S. gas prices in the short term and that the U.S. Treasury Department would issue temporary licenses to permit some transactions with PDVSA.
Even though the Venezuelan military has shown no sign of abandoning Maduro, Bolton said: “Our assessment based on numerous contacts on the ground is that the rank and file of the Venezuelan military is acutely aware of the desperate economic conditions in the country and we think they look for ways to support the National Assembly government.”
Countries around the world have recognized Guaido, the National Assembly speaker, as Venezuela’s rightful leader, and the United States vowed to starve Maduro’s administration of oil revenue after he was sworn in on Jan. 10 for a second term that was widely dubbed illegitimate.
Maduro has promised to stay in office, backed by Russia and China, which have bank rolled his government and fought off efforts to have his government disavowed by the United Nations.
Bolton reiterated that Maduro would be held responsible for the safety of U.S. diplomatic personnel in Venezuela as well as Guaido and other opposition figures.
He also not rule out U.S. military intervention, although such action is widely considered to be unlikely.
“The president has made it very clear on this matter that all options are on the table,” Bolton said.