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Venezuelan oil sanctions could hit your wallet

Phil Flynn

The current crisis and unrest in Venezuela could lead to sanctions against the country’s oil exports, which could cause your gas and diesel prices to spike.

Where have we seen this story before? Once again, the promise of a nation was lost as socialist dictators -- who sold the people on economic equality in exchange for the removal of their individual rights -- have stolen their future.

In response to the pain felt by the Venezuelan people, the Trump administration officially recognized opposition leader Juan Guaido as the country’s interim president on Wednesday. Nicolas Maduro then cut ties with the U.S.

The Trump administration may now use the “nuclear” sanction option and go after Venezuelan crude exports. This could cripple the Venezuelan economy, but at the same time it could cause U.S. refiners to scramble, as many of them rely on Venezuelan crude.

While it is the right move to go after the Venezuelan dictator, it may be hard for U.S. Gulf Coast refiners that rely on Venezuela’s heavy oil.

This may come as a surprise, as many people think that because of the shale oil revolution we would have plenty of crude oil to offset any loss from Venezuela. Yet the truth is that the quality of crudes varies widely, and many U.S. refiners rely on the type of oil that Venezuela produces.

For simplicity, there are two main categories of oil, heavy and light. While the U.S. is awash in light shale oil, we are short of the heavier grades of crude oil needed to produce diesel and other high-margin products.

In 2018, Venezuela exported about 500,000 barrels of heavy crude a day to the United States. That has now fallen to about 350,000 barrels a day, but this is still needed by U.S. refiners to create certain types of products. Any disruptions could force them to slow down their operations, because those barrels won’t be easily replaced.

A slowdown in operations by refiners would lead to higher prices for your gas and diesel.

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Still, the Trump administration is sensitive to the impact caused by rising gas prices, so if the sanctions do go into effect the White House could release oil from the Strategic Petroleum Reserve (SPR) to keep the refineries running -- but it still might not stop what could be a big increase in prices at the pump.

Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report.

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