Venezuela is halting its oil shipments in response to a reported accounting situation in which billions of dollars’ worth of oil sales revenues is missing.
According to Oil Price.com, the exact figure in question is $21 billion, and the allegations of fraud are flying. The oil minister has been sacked and there have been at least 20 arrests associated with the situation. In fact, according to the report although $21 billion of sales have been booked over the past three years, only $4.6 billion can be accounted for. Adding to confustion, it’s also projected that $3.6 billion of the potential missing money may never be collected.
As a result, exports from Venezuela have been reduced by 8% as the audit proceeds. Few buyers are gaining access to the country’s crude.
Venezuela has the world's largest oil reserves. However, due to U.S. sanctions and a long history of questionable practices at the state owned national oil company (PDVSA), it looks as if traders are yawning.
With oil prices trading near their recent lows, this story should have been a booster for prices, at least in the short term. But there are other issues that are precluding a rally in crude. Among them are:
· Decreased oil purchases by the U.S. Strategic Reserves;
· A reduction in shale oil fracking; and
· Decreasing demand as the global economy slows.
Generalized Production Cuts Have Not Helped
OPEC, Russia, and as I noted above, U.S. shale producers are starting to cut back production. But so far, the market has not responded positively.
Moreover, there are questions still lingering about China’s actual demand for crude. That’s because, even though China’s GDP and other economic numbers have shown some improvement of late, there are still signs that all has not returned to normal after the prolonged COVID related shutdowns in the country.
With the U.S. economy showing, at least anecdotal signs of slowing, especially as the banking crisis unfolds, prices are definitely not showing signs of rebounding.
The spot price for West Texas Intermediate Crude (WTIC) is hovering around $70 per barrel. But neither Accumulation Distribution (ADI) or On balance Volume (OBV) are showing signs of heavy accumulation.
Certainly, WTIC is oversold, but the $80 price area seems to be formidable resistance, as illustrated by the large Volume by Price (VBP bar, left side of chart) located at that price point.