DTN Oil

WASHINGTON (DTN) -- Brent November futures traded on the Intercontinental Exchange dropped back below the key $90-per-barrel (bbl) level on Monday in reaction to media reports indicating the Biden administration and Venezuelan President Nicholas Maduro are expected to announce a deal to relieve sanctions on Venezuela oil exports in exchange for the restart of democratic processes in the battered South American nation.

More Venezuelan oil exports would ease supply tightness in the global oil market, serving as a much-needed cushion should the conflict in the Middle East broaden and disrupt oil flow from the region.

Venezuela's oil sector continued its slow recovery following the deal between Chevron Corp. and Venezuelan government to recover throttled crude output on Nov. 26, 2022. Analysts, however, point out that the progress has been disappointingly slow due to the debilitated state of the Venezuela oil infrastructure, lack of electricity supplies and shortages of skilled worders.

"It will take many months if not years for Venezuela to recover oil production," said Andy Lipow, president of Lipow Oil Associates LLC.

Venezuela's oil production averaged 752,000 barrels per day (bpd) over the July to September period, according to secondary sources cited in OPEC's Monthly Oil Market Report, up marginally from a 696,000-bpd output rate seen at the start of the year. That is a far cry from the peak of 3.453 million bpd recorded in December 1997.

Despite recent fluctuations, September's oil exports from Venezuela hit the second-highest monthly average this year with PDVSA, Venezuela's state-owned oil company, shipping around 812,000 bpd of crude and fuel mainly to China, Cuba, and other South American countries.

Monday's move lower in the oil complex also follows promising signs of a de-escalation in the Middle East amid a diplomatic push by U.S. State Secretary Anthony Blinken and allies in the region. Blinken said Sunday upon landing in Cairo, Egypt, that allies in the region "have a shared view that we have to do everything possible to stop the conflict between Israel and Hamas from spilling over in the region."

As of Monday afternoon, Israel has yet to launch its anticipated ground offensive into the Gaza Strip while nearly half a million Palestinians are estimated to have fled their homes from northern Gaza to the southern part of the Strip. Some 600 Americans as well as an unconfirmed number of other foreign nationals are believed to be stuck in the besieged enclave as the conflict drags into the second week.

However, the geopolitical risk for the oil industry remains very high amid the uncertainty of the direction of the war, the first declared by Israel in 50 years since the Yom Kippur War. A broader conflict in the region could put at risk the roughly one-third of oil exported from the Middle East.

At settlement, NYMEX West Texas Intermediate futures for November delivery dropped back $1.03 to $86.66 per bbl, while ICE Brent on ICE retreated a steeper $1.24 to finish at $89.65 per bbl. NYMEX November ULSD futures fell $0.0625 to $3.1492 per gallon. Moving in the opposite direction, front-month RBOB futures traded on NYMEX added $0.0077 to $2.2730 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com