Trump, Trump... an omnipresent melody

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

In last week's article, we noted that the relationship between the market and traditional oil geopolitics seemed to be shifting toward one in which the market is more volatile in the short term, responding to news dynamics, and less attentive to medium-term fundamentals: "The distinction between traditional fundamentals and geopolitical catalysts is blurring..." The week's events are a new point on the curve, indicating that, at least in the short term, news from the White House will set the energy agenda.

 

The announcement of a phone conversation between Trump and Putin impacted markets, including oil. The call was interpreted as the possible beginning of the end of the conflict between Russia and Ukraine, which could lead to the normalization of sanctions and regional boycotts, thus reconfiguring trade flows and causing a decrease in oil prices.

 

Furthermore, direct negotiation between the United States and Russia, without considering Ukraine, European powers, or NATO, reinforces the perception that the three major powers (the United States, China, and Russia) manage global strategies primarily to maintain a balance among themselves. A peace agreement around Russian pretensions in Ukraine would influence relations in the Middle East and the Americas and between China and Russia.

 

The oil market reacted to geopolitical events. After a mid-week recovery based on fundamentals, crude prices were affected by the Ukraine effect—the presumption of lower eventual political risk—and settled at levels from the previous week's close. Regarding natural gas, prices dropped considerably, as Ukraine has been the main umbilical cord between Europe and the Russian supply.

 

Geopolitics

 

The most significant international event of the week was the phone call between Trump and Putin, which apparently initiated negotiations to end the conflict in Ukraine. After that first telephone "summit," President Trump called Volodymyr Zelenskyy to update him on what he had discussed with his nemesis. Zelenskyy indicated that the conversation was very satisfactory, but considering the situation, we don't believe he had any other option but to appear positive.

 

In his first trip to Europe, U.S. Secretary of Defense Pete Hegseth made headlines with surprising statements. Hegseth, breaking traditional negotiation strategies, seemed to give a priori concessions to the Russians, categorically ruling out that Ukraine could return to its pre-2014 borders (Crimea invasion) or that Ukraine would become a NATO member as a guarantee of its future security. Hegseth also told NATO members that the U.S. no longer sees European security as its main priority and that while Ukraine requires security guarantees, these would have to be provided by Europeans. It is a message designed to increase Europe's defense budget but a statement that makes any negotiation for Ukrainian aspirations to regain sovereignty over occupied territories an uphill battle.

 

What was made public about the conversation between Trump and Putin and Hegseth's statements evoked adverse reactions in Europe. It can be deduced that neither the European powers nor NATO knew this unusual American strategy.

 

In the same vein, Vice President J.D. Vance addressed the audience at the Munich Security Conference, dedicating a large part of his speech to criticizing European democracies. That speech provoked a strong reaction from German Deputy Defense Minister Boris Pistorius, who also abandoned diplomatic parsimony and accused Vance of interfering in a Germany about to elect a new government. Vance also met with Zelenskyy in Munich, but no substantial announcements were made beyond photos for the press. For now, announcing a vital mining agreement, central to Kyiv's attempt to gain President Donald Trump's support, is just that, an expectation.

 

The current phase of negotiations between the U.S. and Russia has bilateral implications and could also be a catalyst for a broader restructuring of the world order. How these conversations develop, and their results will have lasting repercussions on global political geopolitics.

 

Indeed, European leadership has interpreted Trump's announcements and Vance's message in Munich as a break from the traditional relationship between the U.S. and Europe. They have called emergency meetings to define continental policy.

 

Although Vladimir Putin undoubtedly smiles at the events, he finds himself in a weaker negotiating position than he would like. Russia has made gradual territorial advances since late 2023 but at an extraordinarily high human and economic cost. Russia has also been advancing a campaign against Ukraine's energy infrastructure, aiming to leave it without electricity and increase its vulnerability during winter.

 

Ukraine has taken its own initiatives. It controls a piece of Kursk, which is strategically important for Russia. Ukraine has also maintained a relatively successful campaign against targets within Russia, including oil refineries and military equipment factories.

 

Trump proposes a ceasefire as soon as possible, primarily based on the current line of contact between the two groups of forces, which would be followed by negotiations on a longer-term peace agreement with all the territorial sovereignty issues that would entail for Ukraine. If the newly incubated negotiations were to fail and if Putin ends up being blamed for the failure of this peace effort, the situation could reverse, and Trump would end up supporting Kyiv and imposing more sanctions on Russia. Vice President Vance did not rule out the possibility of deploying American forces.

 

Meanwhile, in the Middle East conflict, the ceasefire between Israel and Hamas has been maintained despite persistent tensions between the parties. This past Saturday, three Israeli hostages were released in Gaza following the intervention of mediators who helped prevent the collapse of the fragile cessation of hostilities. Likewise, Israel released approximately 369 Palestinian prisoners and detainees from West Bank prisons.

 

On this side of the world, specifically in Ecuador, the first round of presidential elections resulted in a virtual tie between incumbent President Daniel Noboa and his leftist rival, Luisa González, with 44% each. The second round, to be held in mid-April, is unclear. Both candidates will seek votes from the candidate representing indigenous people. Although the left is the natural ally in indigenous politics, Correa's decade of repression against indigenous movements will continue to weigh against that support.

 

Ecuador was an OPEC member, although today, its oil industry has lost dynamism. The suspension of oil drilling in Yasuní National Park in 2024, following a national referendum, has reduced production capacity by 12% (four hundred and sixty-seven thousand barrels per day in January 2025). It is one of the few countries with infrastructure capacity far superior to its production.

 

Fundamentals

 

The Organization of Petroleum Exporting Countries (OPEC) maintains its forecast of relatively strong growth in global oil demand in 2025, relying on air and road travel supporting consumption, and that possible trade tariffs are not expected to affect economic growth.

 

In its monthly report, OPEC forecasts that global oil demand will increase by 1.45 million barrels per day (bpd) in 2025 and by 1.43 million bpd in 2026. Both forecasts remained unchanged from last month. In the report, OPEC states that the new U.S. administration under President Donald Trump's trade policy has added more uncertainty to markets, creating potential imbalances between supply and demand that do not reflect market fundamentals. However, the cartel made no changes to its economic growth forecast for 2025.

 

The International Energy Agency (IEA) estimates that demand growth in 2025 will reach 1.1 million barrels daily (MMbpd). Although this figure is lower than that of OPEC, the gap between the forecasts of both organizations for 2025 is narrower than in 2024. According to the IEA, global oil supply is projected to rise by 1.6 MMbpd, reaching 104.5 MMbpd in 2025. If OPEC+ voluntary cuts remain effective, non-OPEC+ producers will account for most of this increase. However, when analyzing production increase forecasts, we can only definitively identify contributions of 150 Mbpd from Guyana, 170 Mbpd from Brazil, 100 Mbpd from Argentina, and 230 Mbpd from Canada without factoring in declines from various other countries.

 

Consistent with our calculations of a slightly under-supplied market, the IEA maintains that:

 

"Global observed oil inventories fell by 17.1 million barrels (MMbbls), month-on-month, to 7,647 MMbbls in December. OECD (Organization for Economic Cooperation and Development) industry inventories continued to decrease by 26.1 MMbbls to 2,737.2 MMbbls, 91.1 MMbbls below their five-year average. Preliminary January data shows that total global inventories fell by another 49.3 MMbbls, resulting from a large reduction in crude stocks in China."

 

These inventory drops are due to continued demand growth, delays in incorporating new supplies, field decline due to low investment, and the discipline exhibited by OPEC+. In the last two months, OPEC+ has produced 40.6 MMbpd, about 0.3 MMbpd less than the 2024 average.

 

The U.S., the world's largest hydrocarbon producer, continues to produce around 13.2 MMbpd. This week, the Energy Information Administration (EIA) reported a relatively high increase in commercial inventories, at 4.1 MMBBLS of crude. According to Baker Hughes, two new drilling units were activated this week. In any case, American statistics show no material change in the global crude balance in the short term.

 

The Trump administration also favors fossil fuels at the expense of policies designed for an accelerated energy transition. It has removed the U.S. from the Paris Climate Agreement as the spearhead of a new policy that will change its former emission targets: a reduction of  50% to 52% by 2030.

 

In the same vein, Trump issued an Executive Order to Unleash American Energy, which suspends the disbursement of funds allocated through the Inflation Reduction Act (IRA). The order will also allow an increase in fossil fuel extraction and the relaxation of restrictions on energy infrastructure, including the release of federal and offshore lands for hydrocarbon exploration and exploitation activities. This week, President Donald J. Trump signed an Executive Order establishing the National Energy Dominance Council.

 

Trump quickly supported natural gas, approving the first LNG export permit after Biden's pause and creating the National Energy Dominance Council to recommend policies increasing U.S. oil and gas production. This measure is a radical policy change that seeks to reinforce the U.S. position as the world's leading hydrocarbon producer.

 

Likewise, U.S. financial institutions are beginning to abandon their sustainability commitments, which they acquired in response to the environmental policies that had become a global norm. In fact, several major U.S. banks recently withdrew from the Net-Zero Banking Alliance (NZBA), indicating that hydrocarbon development projects will once again have access to banking activities related to loans, investments, and capital markets.

 

Following the same trend, major energy multinationals are refocusing their portfolios on the most profitable areas, generally related to upstream development in the hydrocarbon sector.

 

Other countries have opted for a pragmatic approach, prioritizing economic benefit over energy transition. Brazil and Argentina, for example, support the development of their deep maritime resources and Vaca Muerta, respectively. In contrast, under Gustavo Petro's administration, Colombia seeks a radical transition toward sustainability. The president is pressuring Ecopetrol into selling its stake in a fracking project in Texas, a technology that Colombia is trying to ban via a law. Colombia is walking down an economic path that could be unsustainable.

 

In any case, and separate from the fundamentals, the hydrocarbon business will be affected by the United States' tariff war. This war has generated responses from other countries to American measures it considers protectionist.

 

Price Dynamics

 

Oil prices fluctuated during a confusing and volatile week, fueled by White House announcements about conflicts in Europe and the Middle East and U.S. tariffs on steel and aluminum.

 

As things stand, at market close on Friday, February 14, 2025, the benchmark crude oils Brent and WTI were trading at $74.74/bbl and $70.74/bbl, respectively, practically equal to the previous week's close, despite having oscillated between $77/bbl and $74.15/bbl, in terms of Brent, during the week.

 

VENEZUELA

Pragmatism or Political Change

 

Current political realities are confusing and confirm that, for now, the U.S. strategy of maximum pressure regarding oil sanctions and licenses, which played a significant role in the electoral campaign, has been sidestepped. Both administrations seem focused primarily on the issue of illegal Venezuelan migrant deportations, which has received extensive media coverage. Not unexpectedly, the departure of the first plane from the state airline, Conviasa, carrying Venezuelan deportees had to wait until Mr. Grenell arrived for a photo-op. At the other end, in Maiquetía, a similar event took place, albeit with a tropical twist: Justice Minister Diosdado Cabello welcomed the deportees as heroes , and heartfelt embraces were plentiful for what the regime euphemistically calls the Return to the Homeland Plan.

 

After achieving migration success, the merits and drawbacks of the licenses may be reassessed, leading to a long-term decision. The Venezuelan situation may be part of global negotiations between Trump and Putin.

 

In any event, companies licensed by OFAC and currently operating in Venezuela are heading back to their operational activities after a brief hiatus to digest the new relationships between the regime and the northern power.

 

OFAC is also considering new licenses, including the recently publicized project in the Gulf of Paria, where the Chinese company SINOPEC sold its stake to an American oil fund. The governments of Trinidad and Tobago are also continuing negotiations to maintain the licenses they obtained for joint projects with Venezuela in natural gas fields that straddle their borders.

 

Poor economic performance has forced the regime to reduce public spending and impose strict bank reserves, limiting their ability to grant credit. Tax collection is also contracting, accelerating the vicious cycle. The BCV had to devalue the Bolivar, with the official rate reaching 62 Bs/$ and the parallel rate almost 77 Bs/$, widening the gap between both to 24%.

 

The intervention by USAID during the new administration, along with its alleged involvement in irregular financing, enabled the Venezuelan regime to make unfounded accusations of corruption and misappropriation of funds against members of Guaidó's interim government and the 2015 National Assembly. This served to distract attention from the corruption allegations and electoral fraud surrounding the regime itself, which was an unintended consequence of Trump's disruptions.

 

Oil Operations

 

The latest monthly OPEC report indicates that Venezuelan production in January, according to their secondary sources, was eight hundred and ninety-two thousand barrels per day (892 Mbpd), a modest reduction compared to the previous month. Meanwhile, direct information sent by Venezuela to the OPEC Secretariat shows an increase to 1032 MBPD. We attach a graph showing the figures reported by different sources for the second and third quarters of 2024 and for November and December 2024 and January 2025, an example of how uncertain the analysis of this industry is.

 

Crude production during the last week averaged 860 MBPD, geographically distributed as follows:

 

• West                                   212 (Chevron 97)

• East                                     130

• Orinoco Belt                 518 (Chevron 119)

• TOTAL                                860 (Chevron 214)

 

Due to the low availability of local light crude for the Merey-16 grade blend, imported crude and Hamaca crude produced at the PetroPiar upgrader are being used. In any case, deviations in specifications have been reported.

 

Exports align with the programmed February amount: 626 MBPD of crude and around 60 MBPD of products. The average sale price of barrels commercialized under OFAC licenses, net of debt payment, was $53.8/bbl.

 

Refining runs continue averaging 206 MBPD of crude and intermediate products, with a gasoline yield of 72 MBPD and 75 MBPD of diesel, volumes that continue to demonstrate PDVSA's inability to remedy the situation beyond sanctions. While the natural gas shortage problem is not improving and has become a chronic problem, little is known about the facilities that suffered damage at the end of last year.

INCENTIVES, TARIFFS, AND SANCTIONS: A COMPLEX EQUATION TO SOLVE

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

Less than a month after being sworn in as U.S. president, the world continues trying to decipher President Trump's ultimate intentions beyond the turmoil caused by executive orders. For example, finding coherence between his energy domination policy and incentives to increase hydrocarbon production is complex, particularly in the U.S. The handling of economic sanctions also appears contradictory, and using tariffs as a negotiating element to amend trade imbalances goes against his objective of lowering living costs. The oil market, somewhat bewildered, has reacted with lower prices, interpreting that the sum of announced measures could ultimately erode oil demand. A possible trade war between the U.S. and China has become the main topic of conversation in the markets and their biggest concern.

 

Oil markets briefly rose after the Trump administration issued its first set of sanctions against Iran on Thursday, a sign of the volatility generated. The sanctions targeted what the administration said was an illegal international network facilitating the shipping of millions of barrels of crude to China. The upward momentum didn't last long, and prices resumed downward. They erased gains they had achieved during the first days of 2025 and headed for another week of losses.

 

Geopolitics

 

Announcements from the new U.S. administration have replaced conflicts in oil-producing nations as the most relevant variable for the market. A few days ago, the United States imposed tariffs on imports from Canada, Mexico, and China; in the case of the first two, this represents a violation of the Agreement between Mexico, the United States, and Canada (USMCA), negotiated in 2018. However, the tariffs' implementation was suspended for one month for Canada and Mexico, who showed a willingness to reinforce their borders to control immigration and drug trafficking, especially fentanyl.

 

For its part, China responded to the 10% surcharges on its exports to the U.S. by imposing tariffs of 10 to 15% on imports from the U.S., the first salvo of a possible trade war. Investors are also looking for potential trade measures from Washington aimed at Europe.

 

Moving away from the trade area, President Trump signed an executive order imposing sanctions on the International Criminal Court (ICC) for its investigations into Israel, a close U.S. ally.

 

Neither the U.S. nor Israel are members of or recognize the ICC, which has issued an arrest warrant against Israeli Prime Minister Benjamin Netanyahu and his former Defense Minister for alleged war crimes during the military response in Gaza following Hamas's attack on Israel in October 2023. "The ICC has no jurisdiction over the United States or Israel," states the order, adding that the court had set a "dangerous precedent" with its actions against both countries.

 

Human rights activists said that sanctioning judicial officials would have a chilling effect and would be contrary to U.S. interests in other conflict zones where the court is investigating, a close example being the investigations into Nicolás Maduro's regime.

 

In the Middle East, President Trump's unexpected announcement proposing that the U.S. take control of the Gaza Strip and that its population be relocated to neighboring countries enraged the Arab world. The unexpected proposal surprised U.S. allies and other world powers and even bewildered members of his party. The reaction in Israel was markedly different, seeing it as a vindication of their actions.

 

The idea of forcibly relocating nearly two million Palestinians, previously relegated to the margins of the country's political discourse, has found fertile ground among an Israeli public traumatized by Hamas's attacks of October 7, 2023, seeking ways to feel secure again, however implausible they may seem. Israeli politicians across the political spectrum enthusiastically embraced the idea. Newspaper columns praised its audacity. The country's Defense Minister ordered the military to make plans for its eventual implementation.

 

The ceasefire continues, and Hamas announced five new hostages to be released. On Saturday morning, Hamas released three Israeli hostages in Gaza, and Israel released 183 Palestinian prisoners. Since January 19, 21 hostages and 566 prisoners have been released. The first stage of the agreement includes the release of 33 hostages in exchange for 1,900 prisoners and Hamas fighters; subsequent stages will release the remaining hostages and the bodies of those who did not survive. There remain 76 hostages, of whom 42 are alive.

 

Regarding the conflict between Ukraine and Russia, which has been ongoing for 1,080 days, Donald Trump stated this Friday that he would "probably" meet with his Ukrainian counterpart, Volodymyr Zelenskyy, next week. He also repeated his intention to speak with Russian President Vladimir Putin. The Kremlin indicated that neither a meeting nor a call with President Trump was scheduled.

 

In an interview with Reuters, Zelenskyy spoke about rare earth deposits and other strategic minerals in Ukraine, intending to include this topic in negotiations with Trump to end the war. The U.S. President mentioned Monday that he wanted Ukraine to supply rare earths and other minerals to the U.S. in exchange for financial support for its war effort.

 

Ahead of negotiations, Ukrainian forces launched a new series of assaults in the Kursk region in southern Russia on Thursday, advancing up to five kilometers behind Russian lines southeast of Sudzha. The strategy of annexing more territory is to value the incursion when negotiating the war's end.

 

With a different objective, Ukraine successfully attacked another oil refinery in the Russian city of Kstovo, about 800 kilometers from the front lines in eastern Ukraine. According to Ukrainian media, four drones hit a Lukoil facility, and the installation suffered significant damage.

 

Regarding the Russian advances in eastern Ukraine, the city of Pokrovsk (Donetsk) is currently under siege by Russian troops. Pokrovsk serves as the primary supply center for Ukrainian forces and troops operating on the front lines in the region, making it a key target for Russian forces. Given the likelihood of continued attacks on the city, Ukrainian officials and police have been working to persuade the last remaining residents to evacuate.

 

Syria, which is surrounded by conflicts involving Iran, Turkey, Israel, and Saudi Arabia, is striving to normalize following the fall of Bashar al-Assad. Ahmed al-Sharaa has been appointed interim president and is working to gather international support for reconstruction. Turkish President Erdoğan met with Ahmed al-Sharaa in Ankara to discuss Syria's economic recovery and stability.

 

With the new powers installed in Syria, Russia has conducted multiple flights to an air base in the Libyan desert. Moscow appears to be seeking an alternative stopover for its growing military involvement in Africa and a way to maintain its military presence in the Mediterranean. For almost a decade, the Jmeimim Air Base and Tartus Naval Base on the Syrian coast have served these purposes.

 

Libya, a conflict-ravaged nation in North Africa, is currently central to Russian efforts to project its power in the Mediterranean. Flight tracking data indicates that these flights are conducted from Moscow and Jmeimim to al-Khadim, a base near Benghazi in eastern Libya, using giant Antonov An-124 and Ilyushin II-76 transport aircraft.

 

Geopolitical relations are increasingly interdependent, especially in hydrocarbons. The distinction between traditional fundamentals and geopolitical catalysts is blurring, highlighting the growing importance of energy in countries' actions and alliances. The U.S., China, Russia, and Iran directly or indirectly influence all conflicts and their impacts on the oil market.

 

Fundamentals

 

Although early, the "Drill Baby Drill" policy in the U.S. has generated more noise than real investment intentions. It will need incentives such as royalty reductions on federal and offshore lands and tax reductions for corporations to be effective. Without these incentives, companies will probably maintain their investment balanced with decline, sustaining production at around 13.2 million barrels per day.

 

This week, there has been a significant rise in commercial crude inventories in the U.S. The Energy Information Administration (EIA) reported an increase of 8.7 million barrels. This substantial rebound was mainly due to a decrease in refinery processing levels and a rise in crude imports, which accounted for an addition of 6.1 million barrels. In distillate inventories, a decline of 5.5 million barrels was noted; half of this reduction can be attributed to the lower levels of refinery operations. According to Baker Hughes, drilling activity rose by 4 units, with two in natural gas basins.

 

The United States imposed additional sanctions on Iranian crude exports, temporarily increasing prices. However, this rebound quickly reversed, as it was considered unlikely that the sanctions would immediately impact Iranian exports to China. Analysts also indicated that any successful U.S. policy to reduce Tehran's oil revenues to zero would require support from the broader OPEC group, which is not guaranteed.

 

Trump has also urged OPEC to add more barrels to the market to cool energy prices. OPEC downplayed Trump's request, and according to some reports, they have expressed that it is they and not Washington who set the price of oil. The OPEC+ Joint Ministerial Monitoring Committee (JMMC), chaired by Saudi Arabia and Russia, decided this Monday to maintain its plan to increase crude supply starting in April gradually.

 

Iran's president, Masoud Pezeshkian, urged OPEC members to unite against possible U.S. sanctions after President Trump said he would seek to reduce Tehran's oil exports to zero. Pezeshkian made the request during a meeting with OPEC Secretary General Haitham Al Ghais. Iranian crude oil exports currently amount to about 1.5 million barrels per day, most of which go to China.

 

In South America, Argentina continued increasing its production, mainly from the Vaca Muerta basin. It surpassed Colombia's production in January, reaching 765,500 barrels per day.

 

Canadian pipeline operator Trans Mountain is considering short and long-term expansion projects that could add three hundred thousand barrels per day of transportation capacity to the company's system. The pipeline, which can currently transport up to 890,000 bpd of crude from Alberta to Canada's Pacific coast for export, has been in the spotlight since Trump brought additional tariffs.

 

Global production has not materially increased this year despite Brazil increasing production in two of its Floating Production Storage and Offloading units (FPSO). According to the EIA, global production in 2024 was slightly higher (500 Mbpd) than in 2023.

 

Price Dynamics

 

While President Trump's "Drill Baby Drill" policy has primarily been sidestepped by oil executives gathered in Houston this week, Trump enthusiastically insists on more excellent U.S. production, adding another bearish note to market sentiment, reflected in a drop of almost 2% compared to last week. At market close on Friday, February 7, 2025, Brent and WTI marker crudes traded at $74.66/bbl and $71/bbl, respectively.

 

VENEZUELA

 

A Tale of Two Diplomats

 

The best description of relations between the Venezuelan regime and the White House is that they are confusing. The regime, however, boasts publicly that the visit of special envoy Richard Grenell and less publicized contacts indicate that a kind of agreement was reached: accepting U.S. conditions to receive Venezuelan deportees and the release of American prisoners in exchange for maintaining oil licenses and perhaps eliminating sanctions in general.

 

There is no conclusive evidence that this agreement is anything more than an aspiration of the regime. However, the lack of an official denial from the United States and various media reports has discouraged many Venezuelans. Many anticipated that the outcomes of the July 28 elections last year would garner more explicit international recognition and support, particularly from the new U.S. administration.

 

An article in the Miami Herald has received particular attention. It associates talks between the White House and the Maduro regime with oil businessman Harry Sargeant III, supposedly a friend of Trump and a major Republican party donor, and his interest in Venezuelan oil without sanctions. Although somewhat speculative, it is said that Sargeant and his company would be incorporated into the mixed company PetroCedeño, whose last private partner, Jindal of India, abandoned the project.

 

We also cannot overlook the influence of oil lobbying led by Mike Wirth, Chevron's president, who claims to have informed the White House about the negative geopolitical consequences that would stem from his company's departure from Venezuela. He argues that this decision would enable China and Russia to expand their regional influence. Wirth seems to be unaware that, in the meantime, Sinopec, China's most prominent national oil company, was finalizing an agreement to transfer its assets in the Gulf of Paria to an investment fund managed by Chevron's former president in Venezuela.

 

We must not forget the comments of recently elected Senator Bernie Moreno, who, in an interview with Caracol News in early January, declared: "They had an election, people say it wasn't fair, but at the end of the day, U.S. interests are to stop drug trafficking, to take back all illegal Venezuelans who are in this country, and to do business with the United States, to stop doing business with Russia and China." At the time, not much importance was given to the Colombian-American senator's comment, contrary to then-nominated Secretary of State Marco Rubio's position and inconsistent with the official U.S. position regarding the elections and recognition of Edmundo González as president-elect.

 

During his recent tour of several Central American and Caribbean countries, Marco Rubio continued his criticism of the Venezuelan regime. Still, he was careful to describe Grenell's recent trip to Caracas and the negotiation outcomes as nothing more than a victory for Trump and a defeat for Maduro. The White House must soon clarify which way the diplomatic balance will tilt.

 

On the other hand, the elections called by the National Electoral Council (CNE) for April this year, where governors, the national legislature, and local offices are elected, have become the most significant component of the regime's strategy to, once again, divide the opposition that unitedly won the 2024 presidential elections. Zulia state governor Manuel Rosales and former governor Henrique Capriles, who exemplify the division within the opposition, have already urged participation in elections that González Urrutia and María Corina Machado reject.

 

The mechanisms for controlling the exchange rate have been inadequate. The BCV has permitted its continuous decline. This week, the official rate closed at 60.52 Bs/$, while the parallel rate was at 72.11 Bs/$, creating a gap of 19.2%. Without a significant change in circumstances, this will likely lead to increasing triple-digit inflation, despite control efforts, and would shrink the economy's size.

 

The current economic situation, highly compromised by the lack of oil activity and awaiting definition, could change if the pragmatic negotiation scenario between Maduro and Trump described above is confirmed.

 

The cancellation of the TPS extension, which protects approximately 600,000 Venezuelan immigrants in the U.S., is a source of concern among them. The Department of Homeland Security (DHS) claims that "Venezuela no longer meets the conditions that led to the designation in 2023," citing significant improvements in the country's economy, public health, and crime rates following consultations with several departments, including the State Department.

 

Although we haven't seen a thorough analysis of this issue, the return of large numbers of immigrants to Venezuela will have an immediate social, economic, and political impact, exacerbating an already challenging situation despite what the Trump administration claims.

 

We await the coming weeks to determine whether we move towards "license cancellation" or maintain the "status quo," which would result in diametrically different conditions for regime financing.

 

Oil Operations

 

Natural gas and gas liquids shortages in the form of cylinders have been the most relevant news of the week; collaterally, the deterioration of these cylinders' integrity has caused two explosions during the last few days.

 

In January, 390 Mbpd of crude oil was placed in the international market under a combination of production and marketing authorized by OFAC licenses.

 

The average sale price, net of debt payment, associated with exports under the OFAC license was $53.1/bbl, while the weighted official price of all exported barrels was $37.2/bbl. This latter price results from weighing barrels that do not generate income, such as debt payments and barrels to Cuba.

 

Crude production during the last week averaged 861 Mbpd, geographically distributed as follows:

 

- West:                                    210 (Chevron 95)

- East:                                      131

- Orinoco Belt:                 520 (Chevron 119)

- TOTAL:                                  861 (Chevron 214)

 

However, it should be noted that, due to the low availability of light crude to blend the crude to Merey 16 segregation, the marketed volumes have been dispatched with slightly modified specifications, and part of the upgraded Hamaca crude was used as diluent.

 

Refinery runs averaged 215 Mbpd of crude and intermediate products, with a gasoline yield of 77 Mbpd and a diesel yield of 73 Mbpd.

 

While it is still too early to determine export levels for February, we estimate that Merey 16 will be lower than last month because some of the inventories at the Jose terminal were utilized to fulfill exports to China.

THE WHITE HOUSE CONTINUES TO SURPRISE

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

Financial markets, U.S. allies, and adversaries are still trying to process the many decisions and announcements that characterize the new White House occupant's initial stage. The nervousness and uncertainty that seem to permeate global oil markets are reflected in prices, which have shown intense volatility and a downward trend for the second consecutive week.

 

President Trump is determined to undermine the foundations of many long-standing economic, legal, and political beliefs. This past Saturday, it was announced that starting Tuesday, February 4, tariffs of 25% will be imposed on products from Canada and Mexico and 10% on products from China. An exception was made for Canadian energy, including natural gas and oil; Canadian energy imports will be subject to a lower rate of 10%. The justification given is that this is a measure to force these countries to intensify their efforts in combating fentanyl trafficking and illegal immigration to the U.S.

 

In another move from the same playbook, Trump said he would impose 100% tariffs on products imported from BRICS countries if they attempt to create an alternative currency to the dollar. The new president also did not hesitate to withdraw the U.S. from the World Health Organization (WHO) and the Paris Climate Agreement while announcing the reversal of a series of transitional energy policies from his predecessor.

 

Markets will need to factor in the impact of these measures, particularly the tariffs, which will affect many sectors, especially oil prices; Canada and Mexico supply about 70% of U.S. crude oil imports. In response, Canada and Mexico announced they were preparing proportional tariffs on U.S. products. China regretted the decision and announced it would take “necessary countermeasures to defend its legitimate rights and interests.” Everything indicates that we are at the beginning of a trade war.

 

Geopolitics

 

Donald Trump began his second presidency with a flurry of executive orders and policy changes that have disrupted the geopolitical agenda of virtually the entire world. The dynamic actions aim to correct the U.S.'s trade imbalances with the rest of the world, as perceived by the new administration, reversing the previous government’s policies, mainly regarding energy, and taking control of the so-called “illegal immigration invasion.”

 

The combination of tariffs and political pressure on neighboring countries seeks to force them to secure the border against drug trafficking. While addressing immigration and border issues is an area where he can achieve early victories—and thus solidify the support of voters who prioritize this issue—other initiatives may face more resistance.

 

In any case, a tariff war between these countries would harm their populations' purchasing power. The development of a trade war is difficult to predict and may ultimately backfire on the Trump administration.

 

One of the first programs launched as soon as the new president was sworn in was the capture and deportation of illegal immigrants, initially targeting those involved in criminal activities. A military base in Colorado will be used as a processing center for illegal immigrants. To facilitate their deportation, it was announced that while awaiting consent from their countries of origin, they could be held at Guantanamo Bay, Cuba, or sent to El Salvador with the approval of President Bukele.

 

Through political and commercial pressure, Trump “convinced” President Petro to accept deportees under conditions Petro could guarantee using Colombian transportation—a political and media victory for Trump. After meeting with top regime officials in Venezuela, U.S. Special Envoy Richard Grenell announced that Caracas had agreed to receive its nationals and cover the costs. Notably, Mexico has been routinely accepting deportation flights despite some unfounded reports.

 

Energy Policy

 

Trump’s energy vision is relatively straightforward. It focuses on increasing domestic hydrocarbon production, encouraging greater development activity—the famous “drill baby, drill”—and reducing federal resources allocated to inefficient energy sources. To incentivize increased activity in the U.S., the administration has lifted restrictions on hydrocarbon development activities on federal lands and offshore areas. It proposes returning royalties to 12%, as they were in the past. Additionally, there are plans to reduce the corporate tax rate to 15%.

 

Moreover, the administration seeks OPEC’s cooperation to open its supposedly idle production capacity. This supply increase aims to significantly lower prices, supporting U.S. economic development and benefiting the rest of the world.

 

Trump’s team argues that these changes would eliminate bureaucratic inefficiencies and reduce the “breakeven cost” for new developments by around $12 per barrel. Theoretically, this would avoid the apparent contradiction between volumetric goals and prevailing economic realities. Time will tell how all these forces, which are not entirely coherent, interact.

 

Geopolitics

 

Activity has also occurred in geopolitically tense areas like Southeastern Europe and the Middle East, though it is not as newsworthy or dynamic as Trump’s moves.

 

Russia announced the capture of Velika Novosilka, the second-largest gain for invading forces in 2025, following the complete takeover of Kurakhove in early January. Both towns are located in the southwestern part of the Donetsk region. Currently, Russia controls about 18% of Ukrainian territory, home to around six million people.

 

Meanwhile, Ukraine succeeded in new incursions into Russian territory. According to local observers, the Volgograd refinery, one of Russia’s most significant, was hit and reportedly on fire. Additionally, one of Russia’s major microelectronics factories had to halt production this Friday after a Ukrainian drone attack. The plant, Kremny EL, is located in Bryansk, the capital of the Bryansk Oblast, which borders Ukraine.

 

Ukrainian Special Operations Forces confirmed on Friday that North Korean troops fighting alongside Russians in the Kursk region have disappeared from the contact line.

 

Middle East Developments

 

In the Middle East, the ceasefire in Gaza remains in place, and the exchange of hostages for prisoners and war convicts is progressing. However, Israel maintains its vigilance in the region. This week, upon detecting drone activity in eastern Lebanon, the Israeli Air Force bombed several Hezbollah targets in the Bekaa region. Targets included a military site with underground infrastructure used for weapons development and production, as well as transit infrastructure on the Syria-Lebanon border used by Hezbollah to transport arms into Lebanon.

 

In a new development, President Trump announced that he had ordered precision bombings against ISIS in the Golis Mountains in northern Somalia on Saturday. The strikes killed several ISIS members, with no civilian casualties reported. The bombings destroyed the caves where the Islamic forces were based.

 

U.S. Foreign Policy Shift

 

Secretary of State Marco Rubio embarked on his first international trip, which included visits to Latin American and Caribbean countries: Panama, El Salvador, Costa Rica, Guatemala, and the Dominican Republic. The State Department has called the trip historic, as it marks the first time in over a century that a U.S. Secretary of State has chosen Latin America for their first official visit.

 

Rubio is expected to reinforce the new administration’s immigration priorities with regional leaders and plans to address Beijing’s influence during several stops, particularly concerning alleged Chinese control over the Panama Canal.

 

Fundamentals

 

Global crude oil demand is approaching 104 million barrels per day (104 MMbpd), with uncertainty surrounding additional supplies that some analysts speculate will balance the market on the supply side. Some of these additions, like Guyana, will materialize around mid-year. Brazil’s additions appear somewhat delayed and affected by more significant declines in existing production. New production from Canada could potentially be affected by tariffs and, of course, the gradual opening by the OPEC+ group, which is planned to start in April of this year unless there’s a change in strategy. 

 

However, we are also observing higher declines on the supply side due to a lack of investment in response to increased country risk, financial problems, and internal and external conflicts in various producing countries. These include Mexico, Colombia, Ecuador, Russia, Nigeria, Libya, and the United Kingdom.

 

The U.S., as the major producer and currently in the eye of the storm, is navigating comfortably. It produces slightly more than 13 million barrels per day, which shows curious variability due to the inherent imprecision of the calculation and adjustment system used by the Energy Information Administration (EIA). 

 

The EIA also reported that commercial crude inventories increased by 3.4 million barrels (3.4 MMbbls), while distillate inventories decreased by nearly 5 million barrels (4.9 MMbbls). About half of this increase was related to lower refining runs.

 

The energy decisions that the Trump administration attempts to implement form a complex mosaic of contradictory pieces, creating resistance and uncertainty in achieving the primary goal of reducing energy prices. Let’s dive in:

 

·      Oil is a geopolitical game played on a board with multiple actors and interests. For example, OPEC+ countries may not agree with low prices—say, below $70/bbl for  Brent. In these countries, oil is more than just an industry; it’s the backbone of their economies. As is known, OPEC+ decided to postpone until April the gradual production increase of the cartel, a schedule we don’t believe accommodates Trump’s requests. In turn, this could be related to the resumption of the Abraham Accords, which were interrupted by Hamas's invasion of Israeli territory on October 7, 2023.

 

·      The data indicates that the breakeven price for new wells in the U.S. fluctuates between $59/bbl and $70/bbl, making it complex—as it has always been—to determine an acceptable price.

 

·      The goal of filling the Strategic Petroleum Reserve (SPR) while imposing hydrocarbon sanctions against Russia and Iran, their fleets, and intermediaries limits commercial crude volumes in the market, pushing prices upward.

 

·      Logistical and economic reasons exist to maintain the flow of U.S. crude exports and foreign crude imports, mainly based on the characteristics of respective crudes, such as heavy crudes from Canada, Mexico, Venezuela, Colombia, and Ecuador.

 

·      Additionally, not all oil companies operating in the U.S. oil sector are governed by the same economic, operational, and legal conditions, not to mention differences across sedimentary basins and conventional vs. unconventional developments. In any event, and giving the benefit of the doubt to the effectiveness of the measures, the number of active rigs in the U.S., according to Baker Hughes, increased modestly for the first time in several weeks by six units, with five of these rigs operating in federal areas.

 

No new reports on China have been released, but analysts generally agree that 2025's economic growth will be better than 2024's.

 

The oil market was also adversely affected, although only collaterally, through contagion with the emergence of DeepSeek, which caused a black day on Wall Street, with the Nasdaq tech index falling nearly 3%. DeepSeek is a Chinese artificial intelligence (AI) tool that mimics technologies like ChatGPT. It is said to perform almost as well as the best Western models but requires only a fraction of the computing power and, therefore, a fraction of the cost. DeepSeek is a wake-up call about disruptive technologies emerging unexpectedly.

 

Price Dynamics

 

Predicting price behavior is always complex, but the current environment—where changes happen within hours rather than weeks or months—makes it even more challenging. Volatility and subjective and interpretive perceptions have intensified, affecting investors and, of course, prices. At the close of trading this past Friday, prices began to rebound, likely as the imposition of tariffs became more evident on Bloomberg screens. However, it was too late to avoid another week of losses of nearly 3% compared to the previous week.

 

As such, at the close of markets on Friday, January 31, 2025, benchmark crudes Brent and WTI were priced at $75.67 and $72.53 per barrel, respectively. By the time of this column’s publication on Monday, February 3, prices had opened higher in the markets.

 

 

VENEZUELA

 

Visit of Richard Grenell: A New Negotiation?

  

Since Trump’s inauguration, the Venezuelan regime has had reasons to fear the new Trump administration’s stance towards Venezuela. It has been pulling all the levers to protect the benefits of the existing OFAC licenses—the ultimate lifeline for the battered national economy.

 

Suddenly, though not surprisingly, the topic of Venezuela appeared on the White House radar. Indeed, Richard Grenell, a trusted confidant of Trump, landed in Venezuela. Welcomed at Maiquetía Airport by the President of the National Assembly, Jorge Rodríguez, and Venezuela’s Foreign Minister, Grenell met with Nicolás Maduro. The fact that a high-ranking U.S. envoy met with a leader considered a criminal, implicitly granting him recognition, sparked numerous interpretations. 

 

The visit returned memories of secret missions conducted by officials from the previous U.S. administration, led by the then-special envoy Juan González, who held meetings with Maduro and his representatives.

 

Mauricio Claver-Carone, the Trump administration’s head of Latin American affairs, tried to ease the anxiety caused within the opposition by Grenell’s visit. He clarified that Grenell’s mission was limited to demanding the release of U.S. citizens imprisoned in Venezuela and arranging the orderly deportation of illegal Venezuelan migrants, including detained members of the “Tren de Aragua” gang in the U.S. He emphasized that it was not a “quid pro quo” negotiation. Nevertheless, the visit somewhat contradicted the critical positions that the Trump administration continues to express firmly. 

 

Grenell left Venezuela with the six prisoners he had gone to demand; the rest is unclear.

 

Trump stated he had no interest in purchasing Venezuelan oil and stressed the need to help the Venezuelan people. Meanwhile, **Chevron’s CEO, Mike Wirth**, intensified lobbying efforts at the White House, warning that Chevron’s withdrawal would strengthen Russian and Chinese presence in Venezuela. However, Chevron’s activities in Venezuela were not mentioned in the company’s results, even though they represent more than 10% of its crude production. Analysts believe it’s unlikely that the licenses will remain intact due to Venezuela’s situation and the risk of replacement by Russian and Chinese companies.

 

Social media was flooded with rumors linking Grenell’s visit to the announcement that **OFAC had renewed License 41**, which authorizes Chevron’s activities in Venezuela. The reality is that the license is automatically renewed on the first of each month and can be revoked at the Treasury Department’s discretion.

 

Another complex event clouding Venezuela’s internal situation is the unrest in the Catatumbo region in western Venezuela. This area, bordering Colombia, has been the scene of armed clashes involving Colombian armed groups like the *National Liberation Army (ELN) and dissident factions of FARC, alongside the Colombian and Venezuelan armies. Venezuela is being accused of allowing guerrilla fighters to operate freely on its territory in a tangled web of narcopolitics.

 

The economy has continued downward, intensified after the electoral event and Maduro’s subsequent inauguration. Public spending has fallen to levels not seen in over a year, leading to reduced consumption. Legal reserve requirements imposed on the banking sector have reached high levels—around two billion dollars—making bank credit difficult and reducing economic activity. At the same time, official exchange rate controls have been adjusted to allow some currency depreciation. Still, the gap between the official and parallel exchange rates has again exceeded 20%.

 

These trends point to a substantial increase in inflation, which the regime will aggressively try to curb, having learned from past hyperinflationary periods. However, the regime’s hands are partially tied in trying to control runaway inflation, given that the overall supply of foreign currency has contracted and could shrink dramatically if OFAC licenses are reviewed. Thus, an incremental contraction of the Venezuelan economy is almost inevitable.

 

Oil Operations

Oil activities had little change, unlike the turbulent political events and the economic downturn. There is great nervousness and anticipation regarding the prospects of the licenses that, in one way or another, support around three hundred sixty thousand barrels per day (360 Mbpd) of oil: 240 Mbpd are produced under License 41; 80 Mbpd are produced, and another 40 Mbpd are marketed under License 44 A. The volumes placed under the licensing regime are traded mostly at market prices, unlike the rest of the sales, which are transacted with significant discounts and other collection weaknesses.

Operational activities continued almost unchanged, except that light crude oil production in northern Monagas continued at the expense of excessive flaring/venting, which totaled around two billion cubic feet per day (2000 MMcfd).

Crude oil production in January averaged eight hundred sixty-four thousand barrels per day, geographically distributed as follows:

• West:                          211 (Chevron 95)
• East:                           131
• Orinoco Belt:             522 (Chevron 120)
• TOTAL:                     864 (Chevron 215)
• 
  

Refining runs averaged 212 million barrels per day (Mbpd) of crude oil and intermediate products, with gasoline yields of 75 Mbpd and diesel yields of 72 Mbpd. The PetroPiar upgrader processed 126 Mbpd, the highest volume in several years.

The domestic LPG cylinder market continues to face issues due to the limited availability of liquids extracted from the produced gas.

January ended with shipments of 648 Mbpd, of which 64 Mbpd were dispatched without a final destination and are thus classified as floating inventory. The remaining volume, 584 Mbpd, is distributed by destination as follows: 261 Mbpd to the USA, 194 Mbpd to China, 65 Mbpd to India, and 64 Mbpd to Spain. The exported grades were 363 Mbpd of Merey-16, 124 Mbpd of Boscán, and 96 Mbpd of Hamaca.

Due to the limited availability of light crude oil for blending with Merey-16 crude, the marketed volumes have been dispatched with specifications deviating from commercial standards, which we must assume is reflected in a decrease in the realized price.