Oil News: Crude Oil Futures Fall as Venezuela Deal Sparks Oversupply Fears

Light Crude Oil Retreats from Breakout Attempt Amid Venezuela Deal Fallout

Light crude oil futures are lower on Wednesday, but attempting to claw back the losses that drove the market from the brink of a breakout rally on Tuesday into a three-week low earlier today.

At 12:30 GMT, Light Crude Oil futures are trading $56.80, down $0.33 or -0.58%.

Trump’s Venezuela Oil Deal Sends Shockwaves Through Global Markets

Crude oil fell sharply lower overnight after the Trump administration said it had convinced Venezuela to sell it oil worth up to $2 billion to the United States. While the deal aligned with Trump’s goal of controlling the country’s oil output, the move also angered China after it was reported that the product was originally targeted for the Asian powerhouse.

The move strongly indicates that President Trump is poised to exert his power in the region which includes controlling the money generated from the sale of 50 million barrels of crude oil confiscated in Venezuela under a U.S. blockade and reviving the struggling Venezuelan oil industry that has been in disarray for years.

“This Oil will be sold at its Market Price, and that money will be controlled by me, as President of the United States of America, to ensure it is used to benefit the people of Venezuela and the United States,” Trump posted on Tuesday.

China Fires Back with Sharp Criticism of U.S. Actions

The aggressive move by the United States was not received well by China and its allies, which strongly voiced its opposition.

“The United States’ brazen use of force against Venezuela and its demand for ‘America First’ when Venezuela disposes of its own oil resources are typical acts of bullying,” Chinese foreign ministry spokesperson Mao Ning told a press conference.

“These actions seriously violate international law, gravely infringe upon Venezuela’s sovereignty, and severely damage the rights of the Venezuelan people.”

Technical Analysis: Sellers Defend Key Resistance Levels

Technically the main trend is down. Yesterday’s failure to break out over resistance clearly shows that sellers are vigorously defending the 50-day moving average at $58.71 and the December 26 main top at $58.88. While both acted as resistance on Tuesday when the rally failed at $58.87, they are also the potential trigger point for an upside breakout into the intermediate retracement zone at $60.30 to $61.59 and even the 200-day moving average at $62.61.

Earlier today, sellers pushed through support at $56.38, reaching $55.76 before reversing course and recovering nearly all of its earlier losses. A sustained move under today’s intraday low will target the December bottom at $54.84.

Market Outlook: Range-Bound Trading Expected as Geopolitical Tensions Simmer

Looking ahead, the 50 million barrel sale was enough to drive the market lower, but not large enough to damage the structure of the market. The price action suggests traders are content with holding prices inside the $54.84 to $58.88 range until the short-term volatility plays out and traders are able to determine the long-term plan between the United States and Venezuela.

Meanwhile, traders are also monitoring the response from China. While publicly criticizing the moves by the U.S., China is expected to replace oil from Venezuela with oil from Iran and Russia. With this move, concerns over a supply disruption have been dampened. However, the price action indicates they have been replaced by worries about oversupply.

More Information in our Economic Calendar.