London — Oil prices rallied more than 1% on Wednesday after U.S. President Donald Trump ordered a complete blockade of all sanctioned oil tankers entering and leaving Venezuela, raising global political tensions at a time of concern over demand.
Brent crude futures were up 81 cents, or 1.37%, at $59.73 a barrel at 1414 GMT, while U.S. West Texas Intermediate crude was up 74 cents, or 1.34%, to $56.01 a barrel.
Oil prices settled near five-year lows in the previous session on progress in Russia-Ukraine peace talks, as a deal may see Western sanctions on Moscow eased, freeing up supply as the market grapples with fragile global demand.
Trump on Tuesday ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela, adding that he regarded the nation’s rulers as a foreign terrorist organisation.
“Russian risks are well telegraphed, but there are clear risks to the Venezuelan oil supply,” ING analyst Warren Patterson said.
Trump’s comments came a week after the U.S. seized a sanctioned oil tanker off the coast of Venezuela.
It is unclear how many tankers will be affected and how the U.S. will impose the blockade, and whether Trump will turn to the Coast Guard to interdict vessels as he did last week. In recent months, the U.S. has moved warships into the region.
While many vessels picking up oil in Venezuela are under sanctions, others transporting the country’s oil and crude from Iran and Russia have not been sanctioned. Tankers chartered by Chevron are also carrying Venezuelan crude to the U.S. under an authorisation previously granted by Washington.
“Venezuelan oil production accounts for around 1% of global output, but supplies are concentrated among a small group of buyers, mainly Chinese teapot refiners, the U.S., and Cuba,” said Muyu Xu, senior oil analyst at Kpler.
China is the biggest buyer of Venezuelan crude, which accounts for roughly 4% of its imports.
A large drop in U.S. inventories also supported prices.
Crude stocks fell by 9.3 million barrels last week, market sources said, citing American Petroleum Institute figures on Tuesday. The fall, if confirmed by Energy Information Administration data later on Wednesday, is much higher than the 1.1 million-barrel drop analysts polled by Reuters had predicted.
Additional reporting by Robert Harvey in London, Jeslyn Lerh and Siyi Liu in Singapore, Katya Golubkova and Yuka Obayashi in Tokyo. Editing by Louise Heavens and Mark Potter – Reuters
