Market News

(Bloomberg) -- Oil edged higher for a second day as geopolitical risks in Venezuela and Russia offered support to prices that have been weighed down by a bearish oversupply outlook.

West Texas Intermediate rose 0.4% to settle above $56 on Thursday, a day before the January contract expires. The more-active February contract exhibited similar gains.

The prospect of US military action in oil-rich Venezuela, which currently accounts for less than 1% of world crude output, has boosted supply concerns. President Donald Trump this week ordered a blockade of sanctioned oil tankers docking in the Latin American country but refrained from outlining his next moves during a televised address.

The US is also preparing a fresh round of sanctions on Russia’s energy sector over its war in Ukraine even as the US and Kyiv’s European allies have considered security guarantees to ensure any peace deal would hold.

“If no peace deal is reached, the attacks on Russia could escalate, quickly tightening supplies,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities Inc. “If you add in the blockade on Venezuelan oil, crude prices may very well be a bit underpriced here.”

Oil is still on track for the worst annual loss since 2018 as global supplies eclipse demand. Benchmark US crude futures dipped to a four year low in recent days before the spike in tensions pushed prices higher. Market metrics from the Middle East to the US have been flashing signs of underlying weakness.

In Venezuela, oil-storage facilities and tankers at terminals are quickly filling up, according to people familiar with the situation. If those facilities reach maximum capacity, state-owned Petróleos de Venezuela SA could be forced to shut in wells. Meanwhile, oil companies are telling the White House that they are uninterested in returning to Venezuela in the event that President Nicolás Maduro leaves, POLITICO reported.

If oil does make any sharp moves in the coming week, it will come as activity has thinned in the run-up to next week’s Christmas break. That could amplify price moves, lifting volatility.

Meanwhile, heating oil futures declined. On the US East Coast, where the distillate pool is burned in furnaces, weekly diesel output reached its highest since September 2019.