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Jan. 23, 2019, 3:50 p.m. EST

Oil settles lower, but pares loss as traders look to threat of U.S. sanctions on Venezuela

EU may be able to skirt U.S. sanctions on Iran: report

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By Myra P. Saefong, MarketWatch , Rachel Koning Beals


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Oil futures fell on Wednesday, but pared much of their earlier losses by the settlement as traders looked to the possibility of U.S. sanctions on Venezuelan oil, which could lead to a tighter market.

The Trump administration told U.S. energy companies it “could impose Venezuela oil sanctions as soon this week if the political situation there deteriorates further,” Reuters Venezuela tweeted Wednesday , citing sources.

President Donald Trump Wednesday officially said he recognizes Juan Guaido as interim president of Venezuela, and declared sitting president Nicolas Maduro as illegitimate.

That move allows the U.S. to withhold support, such as block IMF loans, and also potentially allow the U.S. to sanction countries doing business with Maduro, said Phil Flynn, senior market analyst at Price Futures Group. The U.S. imported about 17.7 million barrels of crude oil and petroleum products from Venezuela in October 2018, according to the Energy Information Administration .

West Texas Intermediate crude for March delivery fell by 39 cents, or 0.7%, to settle at $52.62 a barrel on the New York Mercantile Exchange after trading as low as $51.86. March Brent  lost 36 cents, or 0.6%, to $61.14 on ICE Futures Europe.

During Wednesday’s session, oil futures had turned sharply lower, breaking out of earlier rangebound trade, following a report that the European Union may soon launch a mechanism that would allow companies to bypass U.S. sanctions, and trade with Iran.

The European Union is expected to launch a mechanism that would facilitate nondollar trade with Iran, circumvent U.S. sanctions, Reuters reported Wednesday , citing comments from diplomats.

The launch of the mechanism would allow the EU to “skirt” U.S. sanctions, but that may have been “offset by reports that the Trump administration is telling energy companies that they should get prepared for sanctions on Venezuela,” said Flynn.

Prices on Tuesday came under pressure after a warning for 2019 global growth from the International Monetary Fund and weak economic data out of China, which underlined concerns about global economic growth and energy demand.

But support for prices emerged late Tuesday from data out just ahead of the settlement. The Energy Information Administration forecast a rise of 62,000 barrels a day in February shale oil output, from a month earlier, to 8.179 million barrels a day. The agency had forecast an increase of more than double that for January from December.

Oil prices have risen by around 20% since hitting annual lows in the last week of December, largely moving in step with rebounding global equities. Production cuts by the Organization of the Petroleum Exporting Countries and its allies were largely behind that market move. OPEC and 10 producers outside the oil cartel, led by Russia, agreed late in 2018 to collectively hold back crude output by 1.2 million barrels a day for the first half of 2019 to limit a supply glut and boost prices.

Read: Here’s what really worries investors about China’s slowdown

The American Petroleum Institute releases weekly data on U.S. oil inventories late Wednesday, followed by official data from the EIA on Thursday. Both come a day later than usual because of Monday’s Martin Luther King, Jr. holiday.

Analysts polled by S&P Global Platts expect the EIA to report a decline of 600,000 barrels in crude stockpiles for the week ended Jan. 18, along with supply increases of 2.9 million barrels for gasoline and 900,000 barrels for distillates.

On Nymex, February heating oil  fell 0.7% at $1.889 a gallon, while February gasoline  shed 1.1% to $1.386 a gallon.

In other energy trading, February natural gas  shed 2% to $2.98 per million British thermal units after trading as high as $3.167, continuing to see high volatility on the back of changing weather forecasts.

Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong. Rachel Koning Beals is a MarketWatch news editor in Chicago.

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