Global oil prices experienced a slight decline on Tuesday as financial markets began to factor in the possibility of a significant boost in crude production from Venezuela. This shift in sentiment followed recent geopolitical developments involving the Latin American nation.
Price Movement and Immediate Cause
During early trading hours, Brent crude futures dipped by 0.2% to $61.62 per barrel. Meanwhile, the US benchmark, West Texas Intermediate (WTI), fell by 0.3% to $58.15 per barrel. The downward pressure stemmed from reinforced expectations of ample global supply this year, set against a backdrop of relatively subdued demand.
Experts speaking to Reuters indicated that the key driver was the potential lifting of longstanding US sanctions on Venezuela's oil sector. The capture of the country's president, Nicolás Maduro, by US authorities has led markets to speculate about a future influx of investment and technology that could revive the nation's crippled oil industry.
Potential Supply Boost and Market Reactions
According to a Reuters source, the administration of former US President Donald Trump is scheduled to hold discussions with American oil executives this week. The agenda is to explore concrete methods to accelerate oil production in Venezuela. Analysts project that, given political stability and substantial US investment, Venezuela's crude output could surge by up to 500,000 barrels per day over the coming two years.
This prospect introduces a bearish element to the market. "Longer term, the U.S. administration's stated desire to drive up Venezuelan oil supply is likely to provide a net bearish impulse to the market," global firm Citi told Reuters. However, they also noted that OPEC, led by Saudi Arabia, would likely intervene with output cuts to protect price levels if supply surprises to the upside.
This decline comes after a previous session where oil benchmarks closed more than 1% higher. That rally was fueled by a geopolitical risk premium injected by the US-Venezuela crisis, highlighting the market's sensitivity to supply disruptions.
Analyst Outlook and Key Influences
Market experts emphasize that while the Venezuela situation adds a layer of geopolitical risk, the primary forces shaping oil prices remain global demand trends and OPEC+ policy. Naveen Damani, Head of Research - Commodities at Motilal Oswal Financial Services, stated that the crisis might offer a modest risk premium, but geopolitical events are a secondary influence, contingent on their actual impact on supply and demand balances.
Rahul Kalantri, VP Commodities at Mehta Equities, pointed out that Venezuela's current output has dwindled to below 1% of global production due to years of underinvestment, limiting its immediate price influence. He highlighted that ample global supply continues to weigh on the market. He also interpreted Saudi Arabia's third consecutive price cut to Asia as a sign of softer demand, even as the OPEC+ decision to pause supply increases offers near-term price support.
Commenting on the daily trading trend, Kalantri expects volatility. He identified support for WTI at $57.10-$56.20 and resistance at $58.60-$59.30. In Indian Rupee terms, MCX crude oil has support at ₹5,190-5,100 and resistance at ₹5,345-5,395.
Damani added that in the near term, prices could move in a broad range. "Weakness towards 4,600 or $47 can also be a short-term possibility with the major trend change happening only above 5,500 or $63 levels," he concluded.
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.
