‘TAKING IT ON THE CHIN’
After oil’s rally earlier this month, crude was due for a tumble.
There were no shortage of reasons cited for oil’s dive last week that ended a lengthy rally and slashed prices to $60 on Thursday.
Amid the reasons offered for a halt to the run-up that raised the price of crude by 30 percent this year: Potential dangers of AstraZeneca’s coronavirus vaccine in Europe and Asia threatened to derail a demand recovery there. Questions remained about the full return of Texas refineries after February’s unprecedented freeze. And the potential remained for further attacks on Saudi oil facilities.
But like any market that gets too hot too fast, crude was primed for “some setback,” Giovanni Staunovo, a commodity analyst at UBS Group, told Bloomberg on Friday. “With OPEC and its allies pursuing a cautious approach on production, the oil market should be undersupplied and oil prices will recover again.”
Oil and other commodities also were caught up in an overall market’s sell-off amid fears that inflation would go unchecked by the Federal Reserve.
“This has been driven by a risk-off move, and crude oil is unfortunately taking it on the chin,” said Tariq Zahir at Tyche Capital Advisors. “Going long, energy has been the reopening trade since January 1 this year. Now, you’re looking at the standpoint of having all these profits and taking it all back.”
Venezuela still draws attention
Oil companies are champing at the bit to get back to business in Venezuela, where President Nicolas Maduro is poised to end the monopoly held by Petroleos de Venezuela.
Bloomberg reported Friday that oil executives and lobbyists are meeting with Maduro to be in the best possible position to do business when legislation ending PDVSA’s control is passed.
Meanwhile, six Citgo executives from Houston remain in prison, serving sentences of more than eight years after a judge in November found them guilty of corruption.
Citgo, which moved its headquarters to Houston about 15 years ago, is the U.S. subsidiary of PDVSA. The Citgo leaders were lured to Venezuela in 2017 for a business meeting and arrested on charges of corruption and embezzlement. Most of the so-called Citgo Six are U.S. citizens living in Texas and Louisiana.
Their arrest and trial came as relations between Caracas and Washington soured after Maduro’s disputed 2018 presidential victory. The Trump administration imposed financial sanctions in an attempt to remove Maduro, and the U.S. Justice Department has indicted him as a “narcoterrorist,” offering a $15 million reward for his arrest.
The sanctions, which prevent U.S. oil companies from doing business with PDVSA, remain in effect, but it hasn’t stopped oil companies from around the globe from making contacts in Venezuela, according to Bloomberg. The nation is sitting on an estimated 300 billion barrels of oil.
While oil majors such as Chevron, France’s Total and Italy’s Eni would probably wait until U.S. sanctions are lifted, smaller players might get started whenever new rules opening up the industry for private enterprise take effect.