Oil prices rose more than 1% on Wednesday after President Donald Trump ordered “a total and complete” blockade of all sanctioned oil tankers entering and leaving Venezuela, raising fresh geopolitical tensions at a time of concerns over demand.
Brent crude futures were up 79 cents, or 1.3%, at $59.71 a barrel at 0500 GMT, while US West Texas Intermediate crude rose 77 cents, or 1.4%, to $56.04 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 even 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 now regarded the nation’s rulers as a foreign terrorist organization.
The move could potentially impact 0.4-0.5 million barrels of oil per day, lifting prices by $1-2 per barrel, according to a US oil trader.
However, crude oil traders in Asia said a recovery in futures buying, after prices dipped below $60 per barrel the previous day, was also a key driver of the uptick in oil on Wednesday.
“The price is sentiment-driven by the Venezuelan news for today, but overall, export volumes from Venezuela are relatively small in the global supply share. With all eyes on the Russia-Ukraine discussions, the market is still under downside risk,” a trader said.
Another trader said the price uptick is unlikely to last, adding that “it might be good opportunity for some to build short positions.”
Trump’s latest comments came a week after the US seized a sanctioned oil tanker off the coast of Venezuela.
It is unclear how many tankers would be affected and how the US will impose the blockade against the sanctioned vessels, and whether Trump will turn to the Coast Guard to interdict vessels like he did last week.
In recent months, the US 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 (CVX.N) are also carrying Venezuelan crude to the US under an authorization previously granted by Washington.
China is the biggest buyer of Venezuelan crude, which accounts for roughly 4% of its imports.
Analysts say the oil market is well supplied for now, but if the embargo stays in place for an extended period, crude prices are likely to rise further.
“In the short term, an extreme price rally is unlikely unless there are any retaliatory actions that impact the wider Americas region’s oil and gas systems, while global supply glut expectations remain in the forefront of trading focus,” said Emril Jamil, a senior oil analyst at LSEG.
“But in the longer term, any prolonged disruption can be supportive of prices of heavy crude grades.”
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