GEOPOLITICS, OIL MARKET DYNAMICS AND A TURBULENT YEAR FOR VENEZUELA

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

This last delivery of the year is an opportune moment to take a retrospective look at the events that have marked its course. For most of these twelve months, geopolitical instability, generated by wars and economic sanctions, positively (rise) and negatively (fall) affected the perception of oil market actors, developing volatility that we have analyzed to try to understand the complex world of crude oil price formation. Despite hopes of an energy transition, hydrocarbons will remain essential to the global economic dynamic.

 

The prolonged war between Russia and Ukraine has become a war of attrition, exceeding 1000 days, this time not in trenches, but motorized and aerial. Ukrainian forces managed to occupy a small part of Russian territory in Kursk to stop the Russian advance in eastern Ukraine. They also achieved some success by attacking Russian oil installations far from the border, causing damage to 15% of Russian refineries, some fuel depots, and shipping ports. For its part, Russia opted to use a contingent of North Korean soldiers, further internationalizing the conflict. It began to use more sophisticated and powerful weaponry, sometimes even suggesting that greater involvement of NATO could force them to use nuclear warheads. Both sides have made drones a novel element of this bloody war.

 

The confrontation between Israel and Hamas, initially confined to the Gaza Strip, expanded as Iran and its proxies, Hezbollah and Houthi rebels, joined the conflict. The military success of the Israeli Defense Forces in that conflict has transformed the regional geopolitical dynamics, although it did not solve the underlying reasons. On the other hand, the fall of the Syrian dictatorship of Bashar al-Assad represents a serious setback for Russia, its presence in the Middle East, and its access to the Mediterranean Sea. Iran also lost the supply route to its proxies in Syria, Lebanon, and Gaza, which had already been diminished by more than a year of losses in their wars against Israel.

 

In sum, this year's war conflicts translated into higher transportation costs due to transit limitations through the Red Sea and the Suez Canal, a consequence of the continued attacks by Yemen's Houthis and changes in Russia's export patterns due to damage to its infrastructure. However, the oil and gas production capacity of the regions in conflict has not been significantly affected.

 

On the other half of the world, China has taken the opportunity to push what it sees as its legitimate territorial ambitions. Military deployments around Taiwan and in the Northern China Sea, probably to study the reactions of neighboring countries and international actors in general, are the spearhead of a situation that must be followed with attention.

 

The inauguration of the newly elected American president, Donald Trump, in January 2025 is a significant milestone for his country's internal politics and worldwide. The expectation of a trade war, with increases in tariffs and incentives for domestic investment, will impact economies and relationships with his neighbors and current commercial partners, Mexico and Canada, as well as with China, the BRICS countries, Europe and South America, without counting the potential effect of the much-touted mass deportation of immigrants.

 

From the perspective of industry fundamentals and oil markets, the threat of a global oil demand erosion, or at least its growth, has been the variable that most affected market agents' perceptions.

 

This continued fear is due to a combination of factors: a China with economic problems, until recently, the engine of energy demand growth, and the projections of a recession. The Asian giant's economy has not managed to react to stimuli introduced by the central government. Equally relevant has been the global inflation that erupted since mid-2021 as a product of the energy crisis and the post-pandemic rebound, which motivated restrictive monetary policies in different economies seeking to cool the economy without producing a recession, the so-called "soft landing." One of the collateral effects of this economic cooling is a less robust oil demand growth.

 

By the end of the year, inflation showed signs of responding to these policies, even generating recession in particular cases. Thus, central banks have begun to relax their policies, and we are heading toward a year with inflation under control and interest rates that will once again stimulate investment and, consequently, a more vigorous demand.

 

Week after week, we have tried to make sense of the crude oil price fluctuations as reactions to the most recent events and statistics. Nevertheless, analyzing the year retrospectively, we can conclude that it was a year where the market reacted cautiously, even to seemingly extreme news. The year began and seems to be ending with very similar oil prices. Throughout the year, prices moved within a narrow band of 15 dollars, lower than in previous years. The average cost of Brent crude was $80.7/barrel, a value close to what consumers and producers consider acceptable.

 

This price level is probably very close to what OPEC+ will try to maintain if there is understanding among other producers. At the same time, we are convinced that a price close to $80/barrel in Brent crude terms allows "Shale Oil" producers, the other "swing producers," to maintain their strategy of financial discipline with controlled growth.

 

Another element that characterized the year was the consistent divergence in oil demand and supply forecasts from institutions and analysts, the most relevant being the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC). The estimates of these two institutions do not coincide even in demand predictions for 2024, less than a month from closing, when reality should make them converge.

 

Before Closing the Year

 

In the second week of December, oil prices finally moved past the interpretative dichotomy resulting from the OPEC+ announcement of postponing dismantling its production closure strategy. The issue now occupying market anxieties focuses on the geopolitical repercussions of Trump's decisions regarding sanctions on Iranian and Venezuelan crude. Also, speculation continues about the ability to effectively implement the new sanctions by G7 countries on the Russian "dark fleet"; the market seems to interpret that both strategies have a high probability of increasing crude prices.

 

Geopolitics of the Moment

 

In Syria, confusion still reigns between celebrations and tears related to the release of prisoners from jails. Israel, fearing that the arsenal supplied by Iran to the Al-Assad regime to keep Hezbollah equipped might end up in the hands of insurgents, bombed military targets and missile warehouses on the outskirts of Damascus and is hurrying to take positions on the demilitarized border.

 

The future of Russian bases in Syria remains to be discovered. Russia has two military bases in Syria: The Tartus naval base on the Mediterranean coast and the Khmeimim air base near the port city of Latakia. These bases are considered among the Kremlin's most important military assets. Tartus is especially critical, as it provides Russia with only direct access to the Mediterranean Sea. According to the Russian official news agency TASS, Syrian rebel fighters have already taken total control of Latakia province, where both bases are located. Ukrainian military sources indicated that Russia is withdrawing from its Syrian bases, although Russia rules out that possibility.

 

The second censure motion against the president for declaring martial law in South Korea has triumphed. President Yoon Suk-yeol will be suspended from office, and Prime Minister Han Duck-soo will temporarily take his place. Koreans took to the streets to celebrate their president's removal, although the Constitutional Court still needs to decide his fate.

 

In Georgia, Mikheil Kavelashvili, a pro-Russian politician, was elected president by the Central Electoral College composed of deputies and local government representatives—the first time the president has not been elected by popular vote. The opposition has yet to recognize the results of the parliamentary vote held on October 26, and the acting president, Salome Zurabishvili, questioned the legitimacy of Parliament in choosing a new president to replace her. Street protests continue.

 

The US and Trinidad and Tobago signed military cooperation agreements. The agreements, which include the renewed Status of Forces Agreement (SOFA) and the Cross-Servicing Acquisition Agreement (ACSA), were signed on December 10 by National Security Minister Fitzgerald Hinds and US Department of Defense representatives. According to the US Embassy in Port of Spain, the new SOFA will allow greater interoperability between the armed forces of both countries, facilitating the exchange of resources, personnel, and logistical services.

 

Current Fundamentals

OPEC+ maintains relatively constant production that will average 40.5 MMbpd for the last quarter of the year and, according to announced agreements, will remain at that volume until April 2025. According to OPEC, global demand by the end of 2024 is 103.8 MMbpd, while the IEA reports 102.8 MMbpd, a difference in figures that is difficult to understand.

 

The US also maintains a constant production level (around thirteen million barrels per day), and weekly EIA reports indicate considerable growth during the year (around six hundred thousand barrels per day). Nevertheless, we insist that these amounts may result from arithmetic calculations adjusted by an empirical factor commonly revised retrospectively. Baker Hughes reports that the number of active drilling rigs remained constant last week. Commercial crude inventories fell by one million four hundred thousand barrels (1.4 MMbbls), while gasoline inventories increased by 5.1 MMbbls in the lower average range of the last 5 years.

 

India's Reliance signed a contract to purchase 500 Mbpd of Russian crude, almost one-eighth of India's daily imports. Unofficial sources indicated that the negotiated price is $4/bbl below the Brent price. The increase in Russian crude purchases is made at the expense of crude from Saudi Arabia and Venezuela. We'll see how this is managed in an environment of new sanctions on Russian oil.

 

After clashes between armed groups near the facility, Libya's state oil company declared force majeure at its 120,000 bpd Zawiya refinery today. The company said several storage tanks were damaged, causing fires, although these were later contained. Zawiya is Libya's largest operating refinery, with most of its output absorbed domestically. It runs on crude from Libya's El Sharara oil field, which Repsol runs.

 

Mexico's production continues to fall amid budgetary problems and the overwhelming debt of the state-owned oil company Pemex. November production is estimated at 1.3 MMbpd, almost 30% below the budgeted production.

 

Meanwhile, Argentina's production continues to grow from the activities of state-owned YPF and private companies. In November, the average production was estimated at 746 MBPD, primarily due to growth in the Vaca Muerta Basin.

 

Our supply and demand balance estimates indicate that current demand remains at 102.8 MMBPD and supply at 102.5 MMbpd.

 

Price Behavior

The market finally seems to have digested that OPEC+ would maintain its current production until the end of the first quarter. It perceives that instability in the Middle East and Eastern Europe represents a real threat to normal oil activities and, therefore, factors in a greater geopolitical risk. In parallel, the touted supply increase from other producers has begun to raise doubts, which has helped to strengthen prices during the last week.

 

So, at market close on Friday, December 13, Brent and WTI benchmark crudes were quoted at $74.49/bbl and $71.29/bbl, respectively. The week closed with a gain of around 4.7% compared to the previous week.

 

VENEZUELA

A Year of Political, Economic, and Emotional Ups and Downs

 

If international geopolitical uncertainty was the order of the day on the world stage, the public scene in Venezuela was no less dramatic. The surprising success of the opposition primaries in 2023, with María Corina Machado's victory, led to her disqualification and, after a bumpy route, to the nomination of Edmundo González Urrutia (EGU) as the presidential candidate.

 

On July 28, despite all the obstacles imposed by the regime during the electoral campaign and the process of voting and counting votes, the objective of winning the elections was impressively achieved, though not surprisingly. EGU won 70% of the votes. The regime's institutions then hijacked the process, and the National Electoral Council, or at least part of it, communicated partial results favoring Maduro and qualified them as irreversible, declaring Maduro as the contest's winner. The street protests in response to the perpetrated fraud led to violence and repression by the regime's security forces, causing more than two dozen deaths and over 2,000 detentions, including minors and teenagers.

 

However, in a well-planned and unexpected operation for the regime, the opposition managed to collect 83% of the original voting records, proving EGU's triumph by a wide margin. The only international observers, the Carter Center and UN experts, reached the same conclusions: the process reported by the CNE did not meet the requirements of a democratic process, and they supported the results of the vote tallies collected by the opposition.

 

The international reaction of democratic countries, faced with the evidence shown by the opposition, was not to recognize the results announced by the regime. Many countries have subsequently recognized Edmundo González as Venezuela's president-elect. Maduro and González maintain that they will be sworn in on January 10, 2025. For now, EGU's swearing-in seems more like a chimera, but things are happening at extreme speed.

 

Meanwhile, the regime continues trying to "normalize" the electoral fraud, using economic and political actors as lobbying agents, both internally and with the new American administration. In parallel, the security forces continue its strategy of repression of dissidents, which has been censured by several international.

 

The Economy a Weak Flank

 

Before the July 28 elections, the regime kept the official dollar anchored to reduce inflation, one of the significant concerns of the population, and increased public spending in the last months of the campaign in an extraordinary effort to distribute CLAP boxes (food packages) among its militants, associates, and those vulnerable to such treatment.

 

Today, after the elections, the shortage of foreign currency continues to unbalance the country's economic strategy, delegated to Delcy Rodríguez, vice president and energy minister. Oil revenues are not rising; the official Venezuelan basket price hovers around $35.6/bbl, while the theoretical price is $66/bbl – a result of discounts on crudes sent to Asia and for debt payments to Chevron on those sent to the US.

 

Public spending is being reduced, contributing to the economy's shrinking size and general consumption decline. A good part of the oil income leveraged by an amount used from international reserves has been directed to the intervention market to stop monetary devaluation. However, the official dollar is already approaching 50 Bs, and the parallel market is at 60 Bs.

 

As an example of the economic and legal insecurity facing the private industry, a product of political discretion, Diosdado Cabello, interior minister, denounced a "conspiracy" of judges, prosecutors, military personnel, and businessmen from Zulia State. The procedure resulted in the detention of at least seven people and the accusation against José Enrique Rincón, owner of Grupo Lamar, the main shrimp-producing and exporting company in Venezuela.

 

Petroleum Operations

 

Crude production has normalized in northern Monagas at the expense of burning additional quantities of associated natural gas that cannot be collected: today's figure exceeds two billion cubic feet per day (2000 MMcfd) flared or vented. To put the scale of this lost gas volume in context, the figure corresponds to the daily consumption of the rest of Venezuela and Colombia combined. The volume of natural gas reaching Jose and Margarita Island, the primary victims of the Muscar plant accident, is estimated to be between 250 and 300 MMcfd.

 

National crude production averaged eight hundred thirty-six thousand barrels per day (836 MBPD) this last week due to the reopening of wells in northern Monagas and some Orinoco Belt wells closed due to diluent scarcity.

 

The regional production distribution is as follows:

 

• West                                                       200 (Chevron 93) 

• East                                                        121

• Orinoco Belt                                            515 (Chevron 110)

• TOTAL                                                    836 (Chevron 213)

 

Refining levels reached 203 MBPD of crude and intermediate products, with a gasoline yield of 71 MBPD and 66 MBPD of diesel. The El Palito distillation tower started after a prolonged inactivity, producing naphtha sent to the PLC refinery to keep it operating since all light crude was dedicated to Orinoco Belt crude dilution.

 

The domestic market situation is severely compromised by gasoline and diesel shortages. Gas cylinders disappeared from the market, and "bachaqueros" (black market sellers) emerged with gas cylinders at exorbitant prices. Even in the capital city, buildings and houses dependent on large cylinders have not been able to be restocked. Meanwhile, sufficient gas is arriving in the Jose area in the eastern part of the country to maintain 75% of methanol production and a train of ammonia and urea.

 

Crude exports, year to date, averaged around 610 MBPD, slightly higher than in 2023. Exports for the last 13 days equate to a monthly average of 580 MBPD, but this number will be better defined as the month progresses.

 

OPEC+ STICKS TO ITS VOLUME STRATEGY

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

While the real oil industry faces daily complexities in supplying the more than 100 million barrels demanded worldwide, the oil market oscillates between fragility and firmness, chaos and precision.

 

Amidst the continuous avalanche of events and news, market perception is driven by the most significant event, at least in the short term, avoiding overload from excessive information. Last week, the announcement of a ceasefire between Israel and Hezbollah reinforced the perception of reduced geopolitical risk in the Middle East despite ongoing news from Syria. This week, the OPEC+ decision on production cuts, though anticipated, was the market's key factor. The oil market interpreted the postponement of production increases as evidence that demand, or at least its near-term growth, is threatened, fueling speculation along these lines.

 

Other significant developments, such as the precarious situation of Bashar al-Assad's dictatorship in Syria, the drop in crude oil inventories in the U.S., and increased fuel demand in India, were largely ignored by the oil market.

 

Geopolitics

Given the proliferation of global " hot spots, " it’s not far-fetched to suggest that “global warming,” often used in energy scenario analyses, is equally applicable to geopolitics.

In addition to the escalating confrontations between Russia and Ukraine and the conflict between Israel and Iranian-backed proxies in the Middle East, there’s now a potentially anarchic scenario in Syria. This comes alongside Chinese ambitions in the Far East, turmoil in South Korea, and political crises in France and Germany. These interconnected events arise amid a potentially disruptive change in the U.S. administration.

 

Just over a month before Donald Trump assumed office, discussions of potential peace agreements to end the Ukraine war and reduce Middle Eastern tensions emerged, voiced by Russian Foreign Minister Lavrov and Ukrainian President Zelensky.

 

Meanwhile, Syria’s long-dormant civil war has reignited over the past two weeks. The reduced Russian presence and Iran's weakening regional influence have emboldened Syrian dissidents, who have swiftly taken control of major cities, including Aleppo, Hama, Homs, and finally, Damascus, effectively ending over five decades of Assad family rule. Bashar al-Assad has fled the country, reportedly seeking asylum in Moscow, granted on “humanitarian grounds.”

 

The most prominent figure to emerge from this crisis is Abu Mohammad al-Golani, leader of HTS, a group with roots in Al-Nusra, formerly Al-Qaeda’s Syrian affiliate, though it now denies such ties. HTS’s offensive includes other opposition groups supported by Turkey.

Israel closely monitors these developments, preparing to adjust its border policies and adapt to the new power dynamics. Israeli Prime Minister Benjamin Netanyahu has announced the temporary occupation of a demilitarized buffer zone in the Golan Heights, declaring the 1974 agreement with Syria “collapsed” following the rebels’ takeover.

An Israeli spokesperson suggested the rebels appear rational, emphasizing continued governance of Syria’s needs until a formal transition plan is devised. Celebratory gunfire has been prohibited to maintain order.

This marks the end of a long and cruel era, reshaping the balance of power and regional alliances. Russia and Iran emerge as significant losers. However, no “good” geopolitical outcomes seem likely from this upheaval.

Meanwhile, a fragile ceasefire between Israel and Hezbollah is being tested by airstrikes and missile launches. The Israeli military has carried out operations against Hezbollah targets in Lebanon, retaliating against missile attacks near Mount Dov, a disputed area at the Lebanon-Syria-Israel intersection.

 

Other Geopolitical Developments

• President-elect Donald Trump has threatened 100% tariffs on BRICS nations if they move to create a currency independent of the U.S. dollar.
• Trump attended a ceremony alongside global dignitaries, using the opportunity to discuss Russia-Ukraine tensions and the Syrian conflict with Presidents Macron and Zelenskyy. Curiously, Trump appears to disregard the Logan Act, which prohibits unauthorized foreign diplomacy by private citizens.
• A vote of no confidence against the French prime minister weakens President Emmanuel Macron, while opposition leader Marine Le Pen gains strength.
• Protests demand President Yoon Suk-yeol’s resignation after his failed attempt to impose martial law.
• Georgia: Anti-Russian protests threaten the newly elected government, which has been accused of slow progress toward EU integration and pro-Putin stances.
• Romania: The Supreme Court annulled the presidential election amid allegations of Russian interference, restarting the entire process.
• China-Taiwan Conflict: Military drills near Taiwanese waters and provocations in Philippine waters maintain regional tensions.

 

Market Fundamentals

Efficient markets rely on reliable, timely, and transparent information. Divergent opinions on supply-demand balance stem from a need for such information. Data and projections from producers, consumers, and organizations like OPEC and IEA often reflect biased interests or omit critical details.

 

Building robust opinions requires analyzing available data and applying technical correlations and adjustments, culminating in informed predictions. For instance, in 2024, we estimate oil supply will fall 300,000 barrels per day short of demand, slightly below IEA’s demand growth forecast. By 2025, supply is unlikely to exceed demand even under OPEC+ production plans, leading to a modest inventory drawdown.

 

Our October calculations indicate that in 2024, 78 million barrels were drained from various terminals and storage centers globally while floating storage increased by approximately 62 million barrels. This resulted in a net inventory decline of about 16 million barrels. Based on the mentioned supply-demand balances, global crude inventories are projected to end the year at around 8 billion barrels. It is worth noting that inventory figures are the hardest to estimate accurately.

The obvious question is: why doesn’t the market price of crude reflect this analysis? The answer lies in the recurring perception that future demand might not be robust enough. This stems from concerns over China's economic weakness and the central government's inability to stimulate growth effectively, combined with potential advancements in energy transition, particularly electric vehicles.

On the supply side, part of the answer lies in the perception that the “Trump effect” could incentivize North American production. For instance, investment bank Goldman Sachs projects a global oil surplus of about 400,000 barrels per day next year. They argue that strong supply growth from non-OPEC+ countries offsets the group’s production cuts. However, our data does not support this “strong growth” cited by Goldman Sachs.

 

OPEC+ Announcement

This week, OPEC+, which produces around 40 million barrels per day (MMbpd), announced its widely expected decision to postpone planned supply increases for another quarter. The group has committed to rolling back production cuts from April 2025, with increases spread over 18 months until September 2026.

 

Contrary to expectations, this news did not boost prices as anticipated by the cartel. Instead, as with the previous postponement, prices fell, reflecting concerns that OPEC+ is worried about weak demand growth. Chinese oil imports remain below forecasts, although India helped narrow this gap in November.

 

U.S. and Global Developments

·       U.S. Production: Activity picked up as Baker Hughes reported an increase of seven rigs, primarily focused on natural gas to meet winter demand. U.S. commercial crude inventories fell by 5 million barrels, below the five-year range.

·       Employment Data: The Bureau of Labor Statistics reported 227,000 jobs created in November, surpassing expectations. Unemployment slightly rose to 4.2%.

Other Headlines

·       Colombia: Petrobras and Ecopetrol announced the “largest gas discovery in Colombia's history,” confirming more than 6 trillion cubic feet of original gas in place from the offshore Sirius-2 well.

·       Shell & Equinor: The companies will merge North Sea assets into a joint venture, creating the largest oil and gas company in the mature basin with a production of about 200,000 barrels of oil equivalent per day.

·       Hungary & Gazprombank: Hungary requested that the U.S. exempt Gazprombank from sanctions related to natural gas payments, citing potential negative impacts on U.S. allies.

 

Price Trends

Despite heightened geopolitical conflicts, including the fall of Bashar al-Assad and its repercussions, the market has not reacted significantly. As of Friday, December 6, Brent and WTI crude traded at $71.12/bbl and $67.20/bbl, respectively, down nearly 2.5% from the previous week. Prices began to rise slightly in response to the Syrian crisis.

 

 

Venezuela

Judicial Measures and Political Fallout
The week saw setbacks for the Venezuelan regime. The International Court of Justice prosecutor Karim Khan demanded measures to uphold human rights. Meanwhile, the UN Human Rights Committee ordered Venezuela to preserve all electoral materials from the controversial July presidential elections amid allegations of manipulation.

Despite these developments, the Maduro administration plans to proceed with the January 10 swearing-in ceremony, while opposition leader Edmundo González Urrutia announced his intent to be sworn in within Venezuela, discarding an exile option.

The regime is doubling down with new legal measures, including controversial laws to tighten control over NGOs and political dissidents. Economically, Vice President Delcy Rodríguez traveled to China to seek investments and lobby BRICS countries for Venezuela's inclusion.

 

Economic Situation
Venezuela's economy remains derailed by currency issues and declining revenues. The official exchange rate stood at 48.3 Bs./USD, while the parallel market reached 58 Bs./USD. Lower oil prices have nullified these gains despite slight increases in crude volumes exported.

 

Oil Operations

• Production: Weekly national crude production averaged 812 Mbpd, with regional distribution as follows:
• Western Venezuela: 200 Mbpd (93 Chevron)
• Eastern Venezuela: 130 Mbpd
• Orinoco Belt: 482 Mbpd (108 Chevron)
• Exports: Crude exports reached 590 Mbpd, with destinations including China (293 Mbpd), the U.S. (243 Mbpd), Europe (85 Mbpd), and India (66 Mbpd).

 

Operational challenges persist, including reduced refining capacity (196 Mbpd) and issues with natural gas supply in key regions. This turbulent period reflects Venezuela's ongoing struggle to stabilize its political and economic landscape.

 

 

 

CEASEFIRE IN LEBANON COUNTERACTS BULLISH PRICE SIGNALS

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

A week shortened by Thanksgiving in the U.S., but not less active in news that impacted markets. The fall in U.S. commercial crude inventory and the postponement of the OPEC+ meeting until after the weekend, with indications that there will be no production increases by the cartel this year, among other developments, seemed to support prices. However, the news that overshadowed all others was the ceasefire between Israel and Hezbollah under the auspices of the Biden administration. The agreement consolidates the positions achieved by Israel in southern Lebanon to the point that the Lebanese army is moving south, taking border positions that Hezbollah had previously not allowed. The "Trump Effect" seems to push U.S. stocks to higher levels despite announcements about tariffs and deportation of illegal migrants. Similarly, the president-elect's position on Iran, along with OPEC+ decisions, the new conflict in Syria, and business fundamentals, could cause oil prices to rise in the near future.

 

Geopolitics

The most significant geopolitical event has been the newly implemented ceasefire between Israel and Hezbollah, which could be a first step towards negotiations to end a war that, since 2006, has killed thousands and caused over a million displaced. Maintaining this truce, in the publicized terms, will not be easy. The ceasefire formally began on November 27, 2024.

 

The Biden administration led mediation efforts to reach the agreement, which aspires to spread to the Gaza Strip, where negotiations are stalled. Hezbollah was being decimated by the ingenious Israeli technological and military campaign and saw the ceasefire as an alternative to growing human and population support losses. As for Israel, Prime Minister Benjamin Netanyahu spoke of the need to give relief to the Israeli army, which has been fighting on several fronts for more than a year. Netanyahu's critics say that prolonging the conflict helps him avoid early elections.

 

Israelis believe Hezbollah will attempt to use the cessation of hostilities to regroup and, therefore, are skeptical of the pacifying potential of the event. Israel reserved the right to act militarily if it detects a Hezbollah resupply effort. However, a well-managed ceasefire could be a historic opportunity to neutralize Hezbollah, which, like Hamas, has financial and military support from Iran.

 

Converting the 60-day ceasefire into permanent peace, and even more so achieving a similar result in Gaza, will not be an easy task for the new U.S. government, which, along with Arabs and Europeans, will try to calm the Middle East.

 

For now, the Lebanese army is moving south to take its border positions that Hezbollah had usurped while thousands of displaced people think about returning to their homes.

 

Hamas has not taken a similar escape route. Therefore, the Netanyahu government has no intention of ending its attacks on Gaza, continuing towards its declared objective of destroying Hamas, which still holds about 100 Israeli hostages.

 

As one fire goes out, another emerges. The civil war returns to Syria with the takeover of a large part of Aleppo by an alliance between Hayat Tahrir al-Sham and other Islamic groups linked to Al Qaeda, who, taking advantage of the withdrawal of part of the Russian and Iranian armies, has launched the most significant attack in years. Reports suggest that Moscow has been moving some of its forces to the invasion of Ukraine, while pro-Iranian forces, particularly Hezbollah, have been weakened by Israeli attacks. This Saturday, the Syrian regular army withdrew from Aleppo, the country's second city, in the face of the rebels' unstoppable operation. On the other hand, Russian and Syrian forces are bombing rebel positions that have the support of Erdoğan, the president of Turkey. A conflict that threatens not only the survival of President Bashar al-Assad's regime but also the regional balance.

 

Meanwhile, the Russo-Ukrainian conflict, in addition to verbal threats from both sides, has seen massive Russian attacks on Ukraine's energy infrastructure. Ukraine could decide to increase attacks on refineries and oil storage centers in Russian territory, which could further affect availability for the domestic and export markets. There is talk of an economic crisis in Russia, compounded by human losses in its young generation, which is also not a good omen for its future economy. President Zelenski has already begun to hint at the need for negotiations that respect his territory's integrity.

 

Another geo-economic crisis was presaged by President-elect Trump's announcement of his intention to impose a 25% tariff on imports from Canada and Mexico until their respective governments limit the flow of illegal immigrants and drugs into the U.S. Due to its commercial importance, the news prompted Canadian Prime Minister Justin Trudeau to fly to Florida for a personal meeting with Trump. It is reported that the meeting discussed trade, border issues, and fentanyl trafficking, issues underlying the U.S. leader's tariff threat. Likewise, the president of Mexico, Claudia Sheinbaum, communicated with Trump to discuss tariffs and immigration; the statements from both leaders after the call were contradictory.

 

Fundamentals

The oil industry in the U.S. is not a variable that will modify the supply/demand balance in the short term, maintaining production close to thirteen million barrels per day (13.0 MMbpd). According to Baker Hughes, the number of active drilling rigs in North American basins was reduced by one new unit this week. Perhaps this slow-motion reduction appears more significant if we observe that during 2024, the total reduction exceeds 40 drilling rigs. However, the reduction has yet to translate into a proportional production fall due to increased activity in the Permian Basin at the expense of less productive and gas basins.

 

Drilling wells and optimizing operations oriented to natural gas production are beginning to increase in response to the expectation of higher LNG exports during 2025. The Energy Information Administration (EIA) reported a reduction in U.S. commercial crude inventories of one million eight hundred thousand barrels (1.8 MMbbls) and an increase in gasoline inventories of almost three million barrels, probably in preparation for the demand increase during the Thanksgiving weekend.

 

OPEC+, which produces approximately 40% of the world's oil, has been trying to dismantle the production cuts gradually that have been accumulating for various reasons and events; the organization has postponed its decision on several occasions, citing adverse market conditions. On the other hand, there are indications that the closed crude volume, which some analysts estimate at more than five million barrels per day (5), has declined and, in any case, only a small group of countries would be capable of opening new production.

 

The cartel postponed its next production policy meeting to December 5 to avoid coinciding with another event celebrated on December 1 in Kuwait, where Persian Gulf countries meet. During these additional days, OPEC+ energy ministers will have contacts to achieve unanimity in the upcoming announcements on Thursday. Market expectations are that an extension of quota increases until early 2025 will be announced.

 

Market actors will have to wait until next Thursday to learn about OPEC+'s 2025 policy, although a new delay in planned production increases is increasingly discounted. The group's supply cuts have helped maintain crude prices in a range that, in the case of Brent, the global oil reference, corresponds to $70/bbl to $80/bbl this year.

 

 

The cold season is entering Europe, and increasing concerns are associated with energy supply risks. Anxiety has translated into gas price expectations, which increased 45% in 2024.

 

How cold will it be? Will the wind be strong enough to alleviate pressure on declining gas inventories? Will there be enough LNG favoring the continent? And will Russian gas continue to flow? In case of scarcity, will they have to resort to oil and coal? These are just some of the questions the market and consumers are asking.

 

Wind energy is forecast to collapse in Germany next week, while natural gas storage levels are lower than last year, which led the International Energy Agency to sound the alarm. Natural gas flow from Russia to Eastern European countries has continued, although financial problems threaten its continuity. For example, Austria has decided not to pay gas bills as a mechanism to collect amounts Gazprom must pay for an arbitration award, compounded by recent OFAC sanctions on Gazprombank.

 

China is studying new economic incentives to implement if Trump's trade policy materializes. Meanwhile, China's crude oil imports could increase by the end of this year and early next; Chinese authorities have issued additional quotas to private refineries, the so-called "teapots," to import at least another 43.4 million barrels of crude, according to Reuters.

 

In Mexico, the state-owned oil company PEMEX is freezing the signing of new contracts with service providers while dealing with approximately twenty billion dollars in supplier debts. According to an internal company document obtained by Bloomberg, this temporary suspension by PEMEX's Exploration and Production division affects new agreements with contractors that were not previously formalized.

 

The document, dated November 25 and signed by Néstor Rodríguez Romero, PEMEX's Exploration and Production Director, indicates the decision comes after Mexico's 2025 draft budget publication, which assigns fewer funds to the state-owned oil company's exploration and production activities. This budgetary crisis will affect Mexico's declining oil and gas production.

 

Other News:

• Abu Dhabi National Oil Company (ADNOC) announced Wednesday it's spinning off its low-carbon energy and chemicals division, XRG, which has a market value of at least $80 billion. XRG, which will operate independently from ADNOC, aims to double its asset value over the next decade, leveraging clean energy demand in the global climate transition, artificial intelligence, and emerging economies boom.

 

• Brazil's Matrix Energia Group and TotalEnergies of Argentina confirmed reaching an agreement with Bolivia's state energy company YPFB to use its infrastructure to transport natural gas from Argentina's massive Vaca Muerta shale formation to Brazilian gas consumers. YPFB issued a statement Tuesday saying the agreement strengthened the "regional energy integration process.” This contract underscores Bolivia's shift from gas producer and exporter to idle infrastructure lessor.

 

• ENI (the Italian oil company) and Côte d'Ivoire's Ministry of Mines, Petroleum, and Energy signed contracts in Abidjan for acquiring four new exploration blocks in the country's territorial sea. The blocks CI-504, CI-526, CI-706, and CI-708 cover a total area of about 5,720 square kilometers at depths ranging from 1,000 to 3,500 meters; their proximity to the Calao oil discovery in Block CI-205 represents a strategic opportunity in the area. According to the agreements, ENI can explore the zone for up to 9 years. ENI produces around 22,000 barrels of oil equivalent (Mbped); the company already operates six deep-water blocks in Côte d'Ivoire. Chevron Corp. has also expanded its exploration area in other African countries, including Nigeria and Angola, where it sees potential for production reactivation despite years of decline. West Africa is emerging as one of the world's regions with the most attractive and active offshore exploration and development.

 

Price Behavior

Geopolitics kept markets on edge as the ceasefire between Israel and Hezbollah faced an early test when both parties denounced violations but survived the rest of the week. While partial or temporary peace does not directly affect oil flows, a resumption of hostilities could significantly impact sanctions on Iran and reactivate Houthi actions and other possible reactive acts by Iran.

 

Meanwhile, Russia continues attacking Ukraine's energy infrastructure, increasing the likelihood that Ukraine will respond similarly, which could affect refining and oil flows.

 

In any case, the perception of lower geopolitical risk impacted prices more than all other elements combined, including the Trump effect.

 

Thus, Brent and WTI crudes closed on Friday, November 29, at $72.94/bbl and $68/bbl, respectively, a loss of almost 3% compared to the previous week.

 

VENEZUELA

Custer’s Last Stand?

 

Despite petroleum lobbying efforts and other emissaries trying to convince the new U.S. administration that the Maduro regime is a reliable and necessary partner, the probability of this happening moves further away with each Trump nomination for his international relations team. Added to this is the bipartisan vision in the U.S. Congress in favor of democracy in Venezuela and against electoral fraud perpetrated in the country. Likewise, international recognition of Edmundo González Urrutia as president-elect has been growing.

 

Therefore, the regime has no alternative but to negotiate its exit or prepare more international isolation and stronger sanctions from January 10, 2025. This, if recent history is an indication, augurs new waves of repression against the political opposition and the population in general to maintain social control.

 

For example, the National Assembly approved, in an express manner and giving it organic law status, an instrument they have called the Simón Bolívar Law. This law "formalizes" the violation of the most elementary individual rights and political repression and other acts that, although at odds with the Venezuelan Constitution, the regime already executes. To underscore its indifference to international pressures, the regime has intensified harassment of the Argentine embassy, which, under Brazilian custody, has sheltered six opposition members since before the July 28 elections. Currently, the embassy site is surrounded by the political police, SEBIN, and they have cut off electricity and water. They have also been harassing María Corina Machado's family, blocking the only entrance to her mother's house. All this while, citizens suffer adversities due to a lack of public services, gasoline and diesel shortages, and prices unaffordable to most of the population.

 

In the economic aspect, public spending remains limited by currency availability, which tends not to improve if the effects of the Muscar accident on crude exports are factored in. The official exchange rate has slid to 47 BS./$, and the parallel market rate is estimated at 56 BS./$, a figure nobody publicly mentions but is widely used in commercial transactions. This has led to price increases already observed by citizens in the most traded products.

 

Petroleum Operations

Hydrocarbon industry activities and electricity supply continue to be affected by the  Muscar accident on November 11. The accident's repercussions extend to gas availability in much of the country, impacting electricity supply; oil production is also affected. Jose's petrochemical plants have not yet been able to restart despite PDVSA's damage control operation; the opening of natural gas-rich fields in the Anaco area is reported, and apparently, a redirection of gas volumes from other fields. However, the regime must still explain what happened beyond the worn-out excuse of sabotage and the steps taken to restore the system. Surprisingly, during the week, PDVSA's president, Héctor Obregón, announced "the complete recovery of the Muscar industrial complex in Monagas." However, he did not provide details of the extent of that recovery.

 

Last week's average national production was 750 million barrels per day (750 Mbpd) due to closures and diluent scarcity. The only crude upgrader in operation is PetroPiar (Chevron); Merey 16 mixing plants are operating partially.

 

Regional crude production distribution is as follows:

• West                                                        200 (Chevron 93)

• East                                                         108

• Orinoco Belt                                            442 (Chevron 107)

• TOTAL                                                    750 (Chevron 200)

 

Refining levels reached 202 Mbpd of crude and intermediate products, with a gasoline yield of 70 Mbpd and 65 Mbpd of diesel.

 

Export scheduling in Eastern Venezuela continues to be undefined until segregation volumes stabilize. Chevron's exports will not change in volume. The lack of light crude is forcing more DCO production and less Merey. The November export estimate is 576 Mbpd of crude, pending information from the last five days.