Oil futures erased earlier declines after US forces intercepted and seized a sanctioned oil tanker off the coast of Venezuela, a move that marks a major escalation of tensions between the two countries.
West Texas Intermediate traded higher to settle above $58 after earlier dropping as much as 1%. Brent crude settled above $62.
The seizure may make it much more difficult for Venezuela to send its oil overseas, as other shippers are now likely to be more reluctant to load its cargoes. Most Venezuelan oil heads to China, usually through intermediaries, at steep discounts due to sanctions risk.
US President Donald Trump has suggested numerous times that the US could strike on land in Venezuela and that the country’s President Nicolas Maduro’s “days are numbered.”
“Tensions are continuing to move up the escalation ladder and introduce some short-term supply risk,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “That said, given the administration’s clear desire to keep oil and gasoline prices contained, the market is only assigning a small risk premium. Any potential disruption is still being viewed as short-lived.”
Still, oversupply concerns continue to weigh on sentiment. The US said domestic crude production would hit a record 13.6 million barrels a day this year, adding to a flood of supply hitting the global market, while several of India’s largest refiners are buying sanctioned Russian oil, easing the worst fears of a supply threat.
Ukraine carried out yet another attack on a Russian shadow-fleet oil tanker as it continues to target Moscow’s vital seaborne petroleum trade.
Meantime, data from the US Energy Information Administration on Wednesday showed US inventories declined 1.8 million barrels, the first draw on stocks in around three weeks. Inventories at the Cushing, Oklahoma, storage hub rose. Data also showed a surge in fuel inventories, which included diesel stocks rising by the most since early September.
“That’s seasonal for this time of year, but still a slight negative to crude prices,” said Dennis Kissler, senior vice president for trading at BOK Financial.