Oil prices steady after 3% tumble; US reimposes Venezuela sanctions

Investing.com-- Oil prices tread water in Asian trade on Thursday after clocking sharp losses in the prior session on fears of higher-for-long U.S. interest rates, while a bigger-than-expected build in U.S. inventories also weighed. 

Oil markets were digesting the U.S. government’s decision to reimpose oil sanctions on Venezuela after President Nicolas Maduro seemingly reneged on his promise to hold national elections.

Markets still remained on edge over worsening geopolitical tensions in the Middle East, although a lack of immediate retaliation by Israel over an attack by Iran spurred some bets that the situation will not worsen. European countries were also seen mulling sanctions against Iran over the strike. 

But bets on tighter markets were offset by data showing record-high U.S. production and a substantial build in inventories. This, coupled with fears of higher-for-longer U.S. interest rates, spurred steep losses in oil prices on Wednesday, with prices moving little on Thursday.

Brent oil futures expiring in June rose slightly to $87.42 a barrel, while West Texas Intermediate crude futures were flat at $82.20 a barrel by 21:51 ET (01:51 GMT). Both contracts tumbled around 3% on Wednesday. 

US to reimpose Venezuela sanctions

U.S. officials said on Wednesday that they will not renew a license allowing Venezuela to export oil, reimposing sanctions after Maduro failed to meet initial promises to hold national elections.

Still, the move was one step short of the "maximum pressure" policies adopted under former U.S. President Donald Trump, while officials signaled that they still held out hope that the country would hold fair elections.

Venezuela's oil exports grew 12% in 2023 to about 700,000 barrels per day after the U.S. eased some sanctions on the country's oil industry. While Venezuela does not pump oil any more, it has a massive pool of reserves.

US inventories grow more than expected 

Crude prices were nursing steep losses from the prior session after data showed U.S. inventories grew more than expected for a fourth consecutive week, driven largely by strong production.

The reading further undermined bets that global markets will remain tight in the coming months, especially as the U.S. also kept up its pace of oil exports. 

But an outsized draw in distillates and gasoline inventories showed that fuel demand in the world’s biggest consumer remained strong. 

Higher-for-longer rate fears batter oil prices 

The biggest weight on oil prices this week was persistent concerns over higher-for-longer U.S. interest rates, following hawkish Federal Reserve commentary and signs of sticky inflation.

Markets feared that higher rates will weigh on economic activity and stymie global oil demand in the coming months. While the U.S. economy has so far remained resilient, other major economies, particularly China, have been struggling over the past year.

Strength in the dollar also weighed on oil prices, given that a stronger dollar usually dissuades international buyers.