Oil prices continued to fall in Asian trading on Tuesday, extending recent losses driven by a combination of factors, including the possibility of the U.S. relaxing sanctions on Venezuela’s oil industry and signs of a temporary lull in the Israel-Hamas conflict.
Reports suggesting a potential relaxation of U.S. sanctions on Venezuela’s oil industry prompted concerns of increased oil supply in the market, contributing to the downward pressure on prices. The discussions regarding a potential Venezuela deal further weakened oil prices.
Additionally, the relatively calm situation in the Israel-Hamas conflict, with indications that the situation might not escalate into a broader Middle East conflict, led to diminished concerns over potential disruptions in oil supply from the region. U.S. officials also stated that Israel had agreed to provide aid to Gaza, suggesting a reduced likelihood of a widespread conflict. President Joe Biden’s upcoming visit to Israel added to the sentiment of de-escalation in the region.
This combination of factors, coupled with the potential for improved oil supply from Venezuela, resulted in sharp declines in oil prices on Monday, with the losses extending into early Asian trade on Tuesday.
As of 20:59 ET (00:59 GMT), Brent oil futures were down 0.3% to $89.90 per barrel, and West Texas Intermediate crude futures remained flat at $85.41 per barrel. Both contracts had experienced declines of approximately $1 on Monday.
Reports indicated that the government of Venezuela and the opposition plan to resume talks, raising the prospect of Washington easing its sanctions on the country. The lifting of sanctions on Venezuela’s energy sector could lead to increased oil exports from the nation, potentially alleviating the tight global crude markets.
It is worth noting that while Venezuela holds significant oil reserves, the country’s oil production is expected to remain constrained due to poorly maintained infrastructure and limited capital investment in the sector. Furthermore, Venezuelan exports are unlikely to fill the supply deficit created by substantial production cuts from Saudi Arabia and Russia this year.
The Israel-Hamas conflict remained under close scrutiny, with a watchful eye for developments. Traders seemed to be convinced, for now, that the conflict would not draw in other Middle Eastern countries. However, there were concerns of potential escalation, as Israel prepared for a large-scale ground invasion of Gaza and maintained its air strikes in response to attacks by Hamas.
Last week, the expectation of an escalation in the conflict had driven significant gains in oil prices, driven by fears that the involvement of more nations, particularly Iran, could disrupt oil supplies in the region. The recent agreement between Israel and the U.S. to allow aid into Gaza signaled a potential move toward de-escalation in the conflict.
