* White House announces new penalties against state-owned PDVSA
* WTI up as much as 1.6% after falling most in a month on Monday

By Alex Longley

(Bloomberg) —

Oil rose toward $53 a barrel in New York after the White House announced fresh sanctions against Venezuela’s state energy company, bringing another supply risk to the market.

Futures gained as much as 1.6 percent, following a 3.2 percent decline Monday. The Trump administration issued penalties against Petroleos de Venezuela SA which effectively block President Nicolas Maduro’s regime from exporting crude to the U.S. That came hours after OPEC’s largest producer Saudi Arabia pledged deeper cuts in February as part of a deal with its allies to balance the market.

Oil has rallied this year as the Organization of Petroleum Exporting Countries and its partners implement a fresh round of production cuts to ease a global supply glut, with Saudi Arabia pledging to pump well below the limit it agreed on in December. On Tuesday, the prospect of output disruption in Venezuela helped buoy prices even as concern over slowing growth in China capped gains.

“There is a supply risk with the sanctions,” said Petromatrix GmbH Managing Director Olivier Jakob. “You have to view them as having upside price potential. There’s a risk that Venezuela turns out to be another Libya.”

West Texas Intermediate crude for March delivery rose as much as 81 cents on the New York Mercantile Exchange, and traded up 79 cents at $52.78 a barrel as of 9:07 a.m. local time. The contract fell 3.2 percent to close at $51.99 on Monday, the biggest drop since Dec. 27.

Brent for March settlement climbed 97 cents to $60.90 a barrel on the London-based ICE Futures Europe exchange, and was at an $8.13 premium to WTI. The global benchmark crude broke below $60 for the first time in almost two weeks on Monday.

U.S. Treasury Secretary Steven Mnuchin speaks about sanctions on Venezuela’s state-owned oil company.

U.S. President Donald Trump assailed Maduro in a letter to Congress, explaining an executive order he issued sanctioning PDVSA and Venezuela’s central bank. The action will bolster the position of National Assembly leader Juan Guaido, whom Washington has recognized as Venezuela’s interim president. Guaido said Monday he would take control of the country’s accounts abroad and appoint new boards to PDVSA and its Houston-based subsidiary, Citgo Petroleum Corp.

Read also: Venezuela Needs to Dilute Its Oil. That’s Going to Become Harder

The sanctions will see global oil flows rerouted. Refineries in China and India are the only ones that can process Venezuelan crude outside the U.S., Eurasia Group analyst Risa Grais-Targow wrote in a note. PDVSA will have to “deeply discount” its oil to displace Middle Eastern crudes in those countries, she wrote.

Venezuela, holder of the world’s largest oil reserves, has seen output fall to just above 1 million barrels a day from more than 3 million a day in the late 1990s. A recovery will take time, Goldman Sachs Group Inc. said Tuesday.

“You’ve got to wait years before you see a game-changing increase out of Venezuela,’’ Jeff Currie, Goldman’s head of commodity research, said in a Bloomberg Television interview. “Your best-case scenario where you start to see an improved situation, an inflow of capital, is two years bare minimum.’’

Other oil-market news:

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* Five tankers steaming toward the U.S. are carrying what may be some of the last Venezuelan oil to reach America for a while.
* The Nymex gasoline crack traded as low as $4.39 a barrel on Tuesday, the smallest intraday level since November 2010.
* Any meaningful interruption in trade with Venezuela could trigger a test of the country’s domestic storage capacity and lead to further production declines, RBC analysts wrote in a report.

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–With assistance from Sharon Cho.

To contact the reporter on this story:
Alex Longley in London at alongley@bloomberg.net

To contact the editors responsible for this story:
Pratish Narayanan at pnarayanan9@bloomberg.net
Amanda Jordan, James Herron