Oil fell on Thursday as concern over the global economy reasserted itself, reversing earlier price gains made on the potential for USA sanctions on Venezuela.
The latest API data released showed that the United States crude inventories increased 6.6 million barrels, compared with analysts' expectations for a decrease of 42,000 barrels, Reuters reports.
Even without new USA sanctions, Venezuela's production - now about 1.2 million barrels a day - may lose a further 300,000 to 500,000 barrels a day, RBC estimates. The White House on Wednesday took the dramatic step of recognizing Venezuelan opposition leader Juan Guaido as the South American country's legitimate president.
The Trump administration has already slapped sanctions on Venezuela but has so far declined to block imports of Venezuelan crude to the United States.
West Texas Intermediate crude for March delivery slipped 15 cents to $52.98 a barrel on the New York Mercantile Exchange as of 12:52 p.m. London time.
Global oil markets are facing an uncertain year with slowing global growth driving less global demand for oil while the supply picture looks unclear with production cuts by OPEC and Russian Federation potentially counteracted by the growth in US shale oil output. The economic relationship between the two nations is being brought into focus as there may possibly be a U.S. embargo against Venezuelan oil.
Venezuelan oil exports to the USA have declined steadily over the years, falling particularly sharply over the past decade as its production plummeted amid its long economic and political crisis. "Venezuelan production will decline by an additional 300,000-500,000 barrels per day (bpd) this year but such punitive measures could expand that outage by several hundred thousand barrels".
The ongoing OPEC+ agreement to curb oil output remains the nearly exclusive source of support for prices.
But while sanctions and instability in Venezuela could drive oil prices higher in the near term, a long-term shift to a more stable leadership regime in Venezuela could ultimately result in a return to historically normalized crude oil output levels from Venezuela.
Venezuelan oil only accounts for 6% of U.S. oil imports, but an oil embargo could cause the USA to strain its domestic supply.
Nicolas Maduro, the country's Leader since 2013, responded by breaking relations with the U.S.
But McMonigle, now senior energy policy analyst at Hedgeye Potomac Research, believes Trump is very likely to impose sanctions.
Venezuelan oil is predominantly heavy crude, which requires extensive refining, and as such, is frequently blended with lighter crudes to give refiners higher-value products.
Concern about the US trade war with China, as well as slower European growth and more fragile emerging economies, has undermined confidence in the oil market in the last few months. Even if Maduro's government is replaced, "the road back for Venezuela will be extremely arduous given the depths of the economic and humanitarian crisis", RBC analysts Helima Croft and Michael Tran wrote in a note.