Oil prices surged in trading on Wednesday, a day after U.S. President Donald Trump announced new tariffs targeting countries that purchase oil or gas from Venezuela. These countries will face a 25% secondary tariff on trades with the U.S. Trump’s comments referred to the “violent nature” of many Venezuelans sent to the U.S., claiming that Venezuela had sent “tens of thousands” of such individuals. By 11:30 am ET, Brent crude for May delivery was up 1.2%, reaching $73.89 per barrel, while the WTI crude contract also rose 1.2%, hitting $69.84.
The secondary tariffs will primarily affect China, India, Spain, Italy, and Cuba, which are all significant buyers of Venezuelan oil. These tariffs could disrupt global oil supply chains, especially as U.S. oil companies may benefit from Venezuela’s customers seeking alternative sources. Earlier this month, Chevron Corp. (NYSE:CVX) was given a 30-day deadline by the Trump administration to halt operations in Venezuela. The deadline, set for April 3, is notably shorter than the usual six-month wind-down period. Chevron had been operating in Venezuela since 2022 under a special waiver, despite U.S. sanctions on the Maduro regime, exporting crude oil to the U.S. According to U.S. officials, including Secretary of State Marco Rubio, Chevron’s operations have been financially supporting Maduro’s government and its repressive actions. In 2024, Chevron’s operations accounted for about 20% of Venezuela’s oil production, which is close to President Maduro’s target of 1 million barrels per day. Chevron remains the only major oil company with a waiver to operate in Venezuela amid U.S. sanctions.
Venezuela’s oil output has dramatically fallen from 3.2 million barrels per day (b/d) in 2000 to just 735,000 b/d in September 2023, primarily due to sanctions and poor maintenance of infrastructure.
Global Oil Demand Remains Strong Despite Tariffs
Despite potential headwinds, oil prices have shown surprising resilience over the past few weeks, maintaining Brent prices above $70 per barrel during eight consecutive trading days. This stability contrasts with concerns that U.S. tariffs and shifts in policy could push prices lower. However, trader sentiment remains generally negative, with many anticipating weak demand and potential supply disruptions from policy changes, particularly regarding Russian oil targets.
Still, analysts from Standard Chartered argue that global oil demand remains robust. In January, global demand averaged 102.77 million barrels per day (mb/d), marking a 2.19 mb/d year-on-year increase. The bank forecasts that demand will exceed 105 mb/d by June and peak at 105.6 mb/d in August, with an overall growth of 1.41 mb/d projected for the year. They also expect demand to outpace supply in the second and third quarters of 2024. While U.S. tariffs remain a downside risk, the strong demand fundamentals support a more optimistic outlook than current market sentiment suggests.
Standard Chartered points to several factors that have helped support oil prices in recent weeks, including an oversold market, geopolitical risk underpricing, and a shift in trader sentiment away from excessive bearishness. Additionally, positive inventory data and a weaker-than-expected U.S. shale oil supply outlook are providing further support for prices.
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