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Takeaway: Maduro election raises risk of future sanctions on Venezuela crude but high oil prices means other measures will come first.

President Trump today signed an executive order that sanctions the sale or other related transactions involving Venezuela government debt, including state-owned oil company PDVSA.   A copy of the executive order is available here.

The executive order is in response to the Sunday’s Presidential election of Nicolas Maduro that the US and other nations viewed as an illegitimate and sham election.

The election raises the risk of future US sanctions on Venezuela crude sales in the coming months.  We believe that US oil sanctions remain on the table as a “nuclear option” against the Maduro regime.

However, we also believe the administration is spooked by recent high oil prices, and therefore, we are likely to see alternative sanctions like those issued today before stronger crude sanctions will be announced.

Regardless of US sanctions, Venezuela crude production has plunged over the last year.  In April, Venezuela production was at 1.42 million barrels a day (b/d) and down 560,000 b/d from last year.  Under the OPEC production cut agreement, Venezuela is allowed to produce about 1.97 million b/d and the decline in production has accelerated draw downs in global crude stocks. 

Venezuela continues to lose about 50,000 b/d per month, and we expect production to fall another 500,000 b/d by the end of the year.  As a result, we believe the global supply-demand balance will continue to tighten and provide further momentum for higher oil prices.