Investing.com - Saudi attempts to talk up its production cuts and play down the Venezuelan crisis, which many had counted on to be a bastion of support for oil this week, seems to be backfiring.
New York-traded West Texas Intermediate and London's Brent crude fell as much as 4% on Monday before settling off their lows, after Saudi Energy Minister Khalid al-Falih told Russia's RIA news agency that political turmoil in Venezuela has so far had zero impact on global oil markets. He instead re-emphasized Saudi output cuts, which he said were above Riyadh's original commitments.
WTI settled down $1.70, or 3.2%, at $51.99 per barrel, after a session low at $51.34.
Brent, the global oil benchmark, fell by $1.80, or 2.9%, to $59.79 per barrel by 2:45 PM ET (19:45 GMT).
Adding to oil's pressure was the slide in Wall Street's equities indexes, which fell by more than 1% each on worries that China's worsening economic slowdown was eating into corporate profits of firms such as Caterpillar Inc (NYSE:CAT) and NVIDIA (NASDAQ:NVDA).
Separately, Venezuelan President Nicolas Maduro's decision to stall the expulsion of U.S. diplomats from the country has also cooled some tensions between Caracas and Washington, weighing on oil prices too. Oil prices recovered slightly in after-hours trading on Monday, after the Trump administration announced sanctions against Venezuela's state-owned oil firm PDVSA to pressure Maduro to step aside for Juan Guaido, the opposition leader who proclaimed himself interim president last week.
Although Venezuela only ships only about 500,000 barrels per day to the United States -- less than 10 percent of the 5 million bpd of imports averaged by American refiners -- its heavier-grade crude is essential for producing diesel and other transportation fuels in the U.S. While the United States produces about 12 million bpd of crude on its own, that is mostly of the light crude variant meant for making gasoline.
Saudi Energy Minister Falih, responding to a question on Caracas, said he saw no need to take additional measures on the oil market because of the situation in Venezuela.
So, there would be no necessity for OPEC to retreat from the production cuts it had embarked on since December to bring supply-demand back into balance.
WTI is up 22% from Christmas Eve lows of $42.36 mainly because of OPEC cuts, although recent volatility had reduced year-to-date gains to around 13% from highs of nearly 20%.
To reinforce his point, Falih told a separate interview with Bloomberg Television that Saudi Arabia will pump oil for six months at levels “well below” the voluntary production limit it accepted under OPEC’s oil-cuts accord . January production will be 10.2 million barrels per day and February will be 10.1 million versus the original 10.33 million volunteered by the Saudis in December.
Falih said the global oil output deal would need to be reassessed in March-April and hoped its impact would be "more than a hundred percent" by then.