Oil prices rallied by nearly 2% today after US President Donald Trump ordered a complete blockade of all sanctioned oil tankers entering and leaving Venezuela, raising global political tensions at a time of concerns over demand.
Brent crude futures were up 99 cents, or 1.7%, at $59.91 a barrel at 1302 GMT, while US West Texas Intermediate crude rose 97 cents, or 1.8%, to $56.24 a barrel.
Oil prices settled near five-year lows in the previous session on progress in Russia-Ukraine peace talks, as a deal may see Western sanctions on Moscow eased, freeing up supply even as the market grapples with fragile global demand.
Trump on Tuesday ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela, adding that he now regarded the nation's rulers as a foreign terrorist organisation.
"Russian risks are well telegraphed, but there are clear risks to the Venezuelan oil supply," ING analyst Warren Patterson said.
Trump's comments came a week after the US seized a sanctioned oil tanker off the coast of Venezuela.
It is unclear how many tankers will be affected and how the US will impose the blockade against the sanctioned vessels, and whether Trump will turn to the Coast Guard to interdict vessels as he did last week. In recent months, the US has moved warships into the region.
While many vessels picking up oil in Venezuela are under sanctions, others transporting the country's oil and crude from Iran and Russia have not been sanctioned. Tankers chartered by Chevron are also carrying Venezuelan crude to the US under an authorisation previously granted by Washington.
"Venezuelan oil production accounts for around 1% of global output, but supplies are concentrated among a small group of buyers, mainly Chinese teapot refiners, the US, and Cuba," said Muyu Xu, senior oil analyst at Kpler.
China is the biggest buyer of Venezuelan crude, which accounts for roughly 4% of its imports.
A large drop in US inventories also supported prices.
Crude stocks fell by 9.3 million barrels last week, market sources said, citing American Petroleum Institute figures on Tuesday. The fall, if confirmed by Energy Information Administration data later on Wednesday, is much higher than the 1.1 million-barrel drop analysts polled by Reuters had predicted.
