Oil prices decline on report U.S. may ease sanctions on Venezuela

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Oil futures ended lower on Monday after a jump at the end of last week, with prices pressured by a report that the U.S. may have reached a deal with Venezuela to ease sanctions.

Traders also continued to monitor the Israel-Hamas war amid fears the conflict could escalate, threatening supplies.

Price action

  • West Texas Intermediate crude for November delivery


    declined by $1.03, or 1.2%, to settle at $86.66 a barrel on the New York Mercantile Exchange. A sharp rise on Friday contributed to a weekly gain of 5.9%.

  • December Brent crude

    the global benchmark, fell $1.24, or 1.4%, at $89.65 a barrel on ICE Futures Europe after tacking on 7.5% last week.

  • November gasoline
    added 0.3% to $2.27 a gallon, while November heating oil
    shed nearly 2% to $3.15 a gallon.

  • Natural gas for November delivery
    settled at $3.11 per million British thermal units, down 3.9%. Prices extended losses after losing 3.1% last week.

Market drivers

The governments in the U.S. and Venezuela have agreed to a deal under which the U.S. would ease sanctions on Venezuela’s oil industry, according to a report from the Washington Post Monday, citing two people familiar with the talks. Sanctions relief would be announced after Venezuela’s government and its U.S.-backed opposition sign a pact, expected Tuesday, to include commitments by the socialist government to allow a freer presidential election in 2024, the report said.

U.S. benchmark WTI oil touched a session low of $86.32 “after reports hit the tape that the U.S. was going to lift sanctions on Venezuela in exchange for ‘fair’ elections, said Robert Yawger, director of energy futures at Mizuho Securities USA, in a daily report.

Read: Venezuela is set for a ‘long journey’ to boost oil output if U.S. eases sanctions

Oil rose sharply on Friday, with traders appearing reluctant to hold short positions ahead of the weekend as Israel prepared for an expected ground incursion into Gaza. Fears the Israel-Hamas war could spill over, perhaps involving Iran and threatening supplies from the Mideast saw traders rebuild a risk premium after an initial spike last Monday was mostly erased in subsequent sessions.

See: Oil prices in spotlight as Iran warns of escalation of Israel-Hamas war

“The sudden price increase felt on Friday came as traders pondered on the developments in Israel and started to price in the potential disruption to the global oil supply that may emanate from the conflict,” Ricardo Evangelista, senior analyst at ActivTrades, said in market commentary.

“The big question mark surrounds a possible spillover of the confrontation, which could affect major oil producers in the region, and how such a scenario could affect the global supply of crude,” he said. “Against this background, uncertainty will remain high, in a dynamic likely to continue to support the price of the barrel.”

Read: 70% chance Israel-Hamas war spreads beyond Gaza, threatening oil, strategist warns

The bounce last week, however, didn’t see crude challenge the 2023 highs set in late September.

“Any de-escalation in Gaza and a cease-fire will wipe out the political premium in oil prices,” Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisors, said on X late Sunday, estimating the premium at around $4 to $5 a barrel.

Also see: What Israel-Hamas war means for gold as investors seek safety

Meanwhile, U.S. production has climbed to a record high, with output at 13.2 million barrels a day for the week ended Oct. 6, according to the Energy Information Administration. That’s the highest weekly figure based on EIA data going back to 1983.

Commodities Corner: Israel-Gaza war scenarios: Here’s what might lift oil prices to $95, $100 and $115 a barrel

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