SANCTIONS ON IRAN AND OPEC+ DECISIONS MOVE PRICES

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco  

U.S. pressure on Iranian oil exports and the recent announcement by OPEC+ members about oversupply compensation plans just before beginning to eliminate voluntary production cuts gradually indicate a less robust supply and, therefore, support a moderate recovery in oil prices. In contrast, the Federal Reserve and the complex negotiations for a partial ceasefire between Russia and Ukraine have not altered the oil market, which remains indifferent to speculations about unresolved events. Possible interruptions in production flows in some countries could generate additional upward pressures on prices if they persist.

FUNDAMENTALS

Market fundamentals have regained prominence in the oil market dynamics in recent days. OPEC+, news from China and India, and various supply disruptions have configured a scenario that prints a clear upward trend in the oil market.

On Thursday, OPEC+ published a new schedule that requires seven member countries to implement additional production cuts to compensate for their repeated non-compliance with previously agreed levels. The compensatory cuts will significantly exceed the monthly production increases the group plans to introduce starting next month. The plan represents monthly cuts between 199,000 and 435,000 barrels per day; see attached table. The compensatory cuts extend until June 2026.

*Note: figures in thousands of barrels per day

Amid OPEC+ negotiations, Kazakhstan dismissed its Energy Minister. The official is the scapegoat for tensions created by attempts to force OPEC+ policies on the major oil companies operating in the country. Kazakhstan has been producing at a record level and well above the quota agreed in OPEC+, as Chevron increased production in Kazakhstan's largest oil field, Tengiz. OPEC data from last week showed that Kazakhstan produced 1.767 million barrels per day of crude in February, compared to 1.570 million barrels per day in January. Kazakhstan's quota in OPEC+ is 1.468 MBPD.

In China, the government has structured an official subsidy program. Beijing has presented a $41 billion government subsidy program to incentivize consumers to replace their old consumer goods with new ones, thus boosting domestic sales in the face of threats to its export market. Chinese industrial production increased 5.9% year-on-year between January and February, exceeding consensus expectations. However, the rebound in the manufacturing industry so far in 2025 could also be due to anticipation of shipments to the U.S. before the new Trump administration tariffs take effect.

Chinese refineries have maintained high processing rates, partially draining inventories, higher than crude imports. China refined 14.74 million barrels per day during the first two months of 2025. This is a 2% year-on-year increase, primarily due to the entry into operation of new refining capacity in Yulong, approximately four hundred thousand barrels per day.

In India, crude oil import dependence is on track to reach a record level in the fiscal year ending March 31, 2025, as Indian fuel demand continues to grow while domestic crude production remains stagnant. During fiscal year 2024/25, crude imports will reach a historic maximum. During that period, India surpassed China as the world's most significant oil demand driver. Indian buyers have chartered more non-sanctioned tankers to deliver crude to India, as the price of Russia's flagship crude, Urals, has fallen below the $60/BBL limit established by G7 sanctions, allowing the use of tankers involving Western companies.

On the supply side, some unscheduled production interruptions in different countries also supported the oil market.

• Two pipelines in northeastern Colombia, Bicentenario and Caño Limón-Coveñas were forced to suspend pumping after being attacked with explosives, said Cenit, the liquid hydrocarbons transport company, on Thursday. Colombian military forces blamed the National Liberation Army (ELN) for attacks on this subsidiary of the state-owned oil company Ecopetrol (ECO.CN). The Bicentenario, with an extension of 230 kilometers, can transport an average of 150,000 barrels per day of crude. Meanwhile, the Caño Limón, which extends 773 kilometers, can transport up to 210,000 barrels daily.

• Nigeria's Trans-Niger pipeline, a significant oil artery that transports crude from onshore oil fields to the Bonny export terminal, was closed after an explosion caused a fire, said the country's police on Tuesday. Some attribute this to maintenance failures.

• In Ecuador, the rupture of the SOTE pipeline due to a landslide, which caused contamination in several rivers, kept pumping suspended for 6 days and forced the state-owned company to declare force majeure on shipments at Esmeraldas port.

 

Finally, and in line with our comments about BP last week, Equinor announced a change in its energy transition plan while striving to fulfill its promises to invest more in renewable energy and low-carbon technologies. The company speaks of practical difficulties and a change in political priorities. In 2021, the Norwegian oil and gas state-owned company presented short and medium-term measures aimed at achieving net zero emissions, including those derived from using its products, by 2050. But in February of this year, it abandoned its commitment to dedicating more than 50% of its capital investment to renewable energies and low-carbon solutions by 2030. Despite the changes, Equinor remains committed to its 2050 goals but is modifying its short-term targets.

"The energy transition has begun, but high-value growth opportunities are more limited than we had anticipated," said Equinor's CEO Anders Opedal on Thursday. Opedal blamed the increase in costs, challenges in the supply chain, delays by authorities in establishing the necessary framework conditions, and a change in government priorities for the change in strategy.

GEOPOLITICS

Russia and Ukraine plan separate meetings with the U.S. to advance negotiations for an elusive truce. President Trump continues to push for a partial ceasefire, although there is still no consensus on the terms of the agreement. In a phone call, Trump agreed with Putin to stop attacks on the energy infrastructure of both countries for thirty days, with Zelensky's agreement. But both Kyiv and the Kremlin accused each other of several attacks and, therefore, of breaching that promise. Given the risk of a fragile ceasefire, military leaders from several countries met in London on Thursday to discuss the deployment of an international peacekeeping force in Ukraine if a truce is achieved.

While these negotiations take place, the confrontations do not cease. Ukraine attacked the Russian Engels air base this week with drones, where they destroyed an undetermined number of Kh-101 missiles. Russia declared a state of emergency in the area housing the strategic Tupolev Tu-160 bombers with nuclear capability. For its part, the Kremlin intensified its offensive by launching drones against Odesa, Zaporizhzhia, and Kropyvnytskyi.

For some, Vladimir Putin's maximalist demands in his call with Donald Trump indicate that the Kremlin does not desire peace. Secretary of State Marco Rubio had previously observed that Ukraine's agreement on a ceasefire left the responsibility in Russia's hands. "If they refuse, we will know the impediment to peace here." Putin offered to stop attacks on energy infrastructure if Kyiv did the same while declaring that peace would require the total cessation of foreign military aid and intelligence supply to Ukraine. The impediment to a cessation of actions seems obvious, but the Trump administration appears to have little patience for details.

Ukraine will be present in the talks in Saudi Arabia while the United States negotiates with Russia next week in Riyadh. However, the possibility of a tripartite negotiation is still being considered. Kyiv seeks to capture the U.S. president's attention with its strategic mineral reserves and avoid a new distancing, especially after its recent interest in taking control of nuclear plants. However, Russia seems to have an advantage in its dialogues with the United States, encouraged by the U.S. conservative sector, which believes that yielding to Putin's demands could distance him from China.

The expected U.S. security guarantee to Europe has not materialized. If Washington decides to suspend military and intelligence aid to Ukraine again, the consequences for Kyiv would be unpredictable. However, the United States cannot force Ukraine to accept an unconditional ceasefire nor compel Europe to abandon its support for Kyiv. European leaders have understood that while they cannot control Trump's decisions, they can influence them and define their strategy. This is reflected not only in recent discussions about the possible creation of a European "reassurance force" in case of a ceasefire but also in the growing perception that Europe must prepare for a future without depending on U.S. security guarantees.

Germany's eliminating the debt brake to boost military spending is just the beginning of an uncertain path. The Russian threat is much more significant for some countries than for others. Opinions and national priorities in the old continent vary considerably. Leaders differ on whether to prioritize regional or transatlantic strengthening. These questions are sharpening during ongoing negotiations, and the results will shape the lives of future generations, not only in Ukraine but throughout Europe.

Israel resumed the war in Gaza with a surprise bombing on Tuesday morning, ending the fragile ceasefire and warning of an even greater escalation if Hamas does not release the remaining hostages and abandon the territory. By Friday, Israeli forces had advanced deeper into the Gaza Strip, while the country's leaders reaffirmed their intention to capture more territory until the hostages are released. Donald Trump has expressed his full support for the renewed offensive.

Prime Minister Benjamin Netanyahu's coalition is now stronger than ever, and the number of hostages in Gaza has significantly decreased since Hamas initiated the war with its October 7, 2023 attack. This gives the Israeli army greater freedom of action, suggesting that the next conflict phase could be even more intense. "If all Israeli hostages are not released and Hamas is not expelled from Gaza, Israel will act with an intensity never seen before," warned Defense Minister Israel Katz on Wednesday.

In parallel, the Houthi rebels have resumed their attacks against Israel despite recent U.S. bombings of their strongholds in Yemen. Over the years, the Houthis have demonstrated the ability to resist military offensives, first from Saudi Arabia in 2014 and subsequently from the navies of the United Kingdom, U.S., and Israel.

PRICE DYNAMICS

Despite the geopolitical risks in the Middle East and the Russia/Ukraine conflict continuing without a solution, the oil market appears more sensitive to the activities described under "fundamentals." As such, prices gained more than 2% compared to the previous week. Thus, at market close on Friday, March 14, 2025, the Brent and WTI benchmark crude oils were trading at $72.16/bbl and $68.28/bbl, respectively.

 

VENEZUELA

THE SANCTIONS DAISY: HE LOVES ME, HE LOVES ME NOT!

Following a meeting between President Trump and top executives of major oil companies, including Michael Wirth, Chevron's CEO, lobbying has intensified from the American oil company and the regime in favor of maintaining the oil license regime. It is speculated that the relationship between Jorge Rodríguez and Richard Grenell, and Grenell's differences with Marco Rubio, could be an opportunity that the regime might exploit, as it successfully did with the Biden administration. The Venezuelan regime seeks to reverse the decision to replace License 41 with License 41A, instructing the dismantling of Chevron's operations in Venezuela before April 3, likely extendable to other licenses.

According to press reports and other media, the Trump administration is reviewing its decision regarding Venezuelan oil to either issue a new license that somehow restores oil flow or extend the operation dismantling period by an additional month. Other sources close to Secretary of State Marco Rubio indicate that he would not agree to reverse or change the decision, as this would only continue to assist a regime that has broken all its promises and keeps the people in a state of defenselessness while cooperating with international drug trafficking. In summary, Venezuela continues to confront the original dichotomy: licenses or no licenses. We will have to wait for the next few days to confirm the actual course of the Venezuelan oil business.

In any case, Chevron and the regime seem to be preparing for any eventuality. Enough tankers with diluent are heading to Venezuela to raise the production of the mixed enterprises operated by Chevron for at least one more month. At the same time, a significant number of VLCCs (Very Large Crude Carriers) are observed that could load the entire national export to the Far East.

Meanwhile, the Venezuelan regime has been playing a distraction game with a new acceptance of repatriated flights from the U.S. In the interim, the Trump administration has sent 238 Venezuelans, supposedly from the Tren de Aragua gang to El Salvador under an agreement with President Bukele. The regime's angry protests did not wait, describing the delivery of 238 prisoners to El Salvador's prison authorities as a "violation of due process and mistreatment of compatriots." Beyond the fact that defending citizens is a state duty, this is a tremendous irony. The Venezuelan regime maintains hundreds of political prisoners without judicial process and has been harassing six high-ranking members of María Corina Machado's group in the Argentine and Brazilian embassies, denying them safe conduct for a year.

The economy continues to suffer from the same problems observed after the elections but with increasing intensity. Chronic foreign exchange scarcity, inorganic monetary financing, reduced public spending levels, and severe banking restrictions in the form of excessive legal reserves threaten to become structural. Despite all these measures, the BCV has been forced to allow a "controlled" devaluation of the official Bs./$ exchange rate. Market supply limitations have widened the gap between the parallel and official rates, which at the end of the week reached 29%. This situation fuels inflation, not published by the BCV, but rising vertiginously.

On the political side, the electoral farce continues. There was low attendance in the PSUV's internal process to choose candidates, although they speak of more than 5 million. The opposition co-opted by the regime continues campaigning to convince people to participate, and sources close to the CNE indicate that another postponement of the elections is imminent.

At the time of closing this article, President Trump published on his social network that his administration would impose a "secondary tariff" on Venezuela. That is, a 25% tariff would be imposed on any imports to the U.S. that come from any country that buys oil or gas from Venezuela, effective April 2, 2025. This decision, if implemented, is an explicit blockade of the national petroleum industry and can be seen as an unintended consequence of Chevron's argument that its exit from Venezuela would clear the way for Russia and China. In any case, this new sanction will harm the entire nation, and it is unclear whether it is an isolated decision or just a gambit in a broader political game.

Concurrently, OFAC issued License 41B, extending Chevron's "wind down" period until May 27, 2025, including exporting crude only to the U.S. This decision was not entirely unexpected but in dissonance with the "blockade" announced earlier by the American president. America First?

Petroleum Operations

All petroleum activity is pending the development of the license saga, although so far, this has not shown much effect on upstream and refining activities.

Crude production during the last week averaged eight hundred seventy-eight thousand barrels per day (mbd), geographically distributed as follows: 

• West:                         226 (Chevron 106) 

• East:                          128 

• Orinoco Belt:             524 (Chevron 121) 

• TOTAL:                     878 (Chevron 227)

National refineries processed 216 Mbpd of crude and intermediate products, with a gasoline yield of 78 Mbpd and 77 Mbpd of diesel. The average sale price of barrels marketed under OFAC licenses, net of debt payment, was $50.1/bbl, and the weighted average of all exports was $33.4/bbl. To date, no activity indicating cessation of operations by licensed companies has been observed. Some 7.3 MMBBLS have been sent under licensed exports during the month. As mentioned earlier, options that could materialize in the coming days are being handled flexibly.

 

Oil Shows Indifference to Market Volatility

  El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

While capital markets experienced one of their worst weeks of the year, oil prices remained unusually indifferent to the US’s numerous economic and political events this week. The tariff war unleashed by the White House, which threatens to alter prices, was compounded by signs of higher global inflation, affecting central banks' already precarious growth plans and monetary control. On Friday, all markets rebounded upon learning that the threat of a US government shutdown had been averted. On the geopolitical front, new US meetings with Ukraine and the re-establishment of military intelligence exchange, as well as ongoing talks with Hamas, have partially calmed international anxiety despite the tightening of US sanctions against Iran.

In any case, additional sanctions on shadow fleets used to transport sanctioned crude and their owners, the cancellation of OFAC licenses in Venezuela, and the conditions of a possible ceasefire in Ukraine, especially regarding sanctions on Russian hydrocarbons, will influence oil prices.

Geopolitics

The center of geopolitical attention is focused on the progress of tripartite negotiations between the US, Ukraine, and Russia, seeking to end the war between Russia and Ukraine, a conflict that has lasted more than three years and is in almost total stalemate. Negotiations began a few weeks ago between the US and Russia with Saudi Arabian mediation, almost an oil conclave, followed by the disagreement between Zelensky and Trump, which led Ukraine to seek more significant support from European countries. This week, the US and Ukraine resumed talks in Jeddah, agreeing on elements for a 30-day truce. Putin was also expected to accept these conditions. Still, in a televised press conference, the Russian president stated that, although he agreed with the idea, details needed to be decided upon to eliminate the root causes of the conflict and achieve lasting peace.

Putin reiterated some of his conditions for ending the conflict. For example, Russia wants Ukraine to reject NATO weapons, limit its military size, abandon its desire for NATO membership, and that there be a change of government in Kyiv. These are, at the same time, all red lines for Ukraine. In any case, the Trump administration seems willing, at a minimum, to block Ukraine's ambitions to join NATO. Additionally, Putin dismissed the idea of a temporary pause. Putin is not in a hurry because he is recovering part of Russian territory taken by Ukraine in Kursk.

Parallel to the ongoing negotiations, the Ukrainian army launched a drone attack on a Russian refinery located in Tuapse, in the Russian Black Sea region, with 240,000 b/d capacity, marking the third drone attack on a refinery in the week. Russia responded by launching a night attack with 178 drones against civilian targets. In short, the multilateral agreement may take more time than what emerged from the initial talks between the US and Ukraine. Trump and Putin have scheduled a call for the week.

In the case of Iran, the Trump administration is determined to exert maximum pressure to force a nuclear limitation agreement and end the financing of militant groups in the region. Consequently, OFAC imposed sanctions on Iran's Oil Minister, Mohsen Paknejad, and some Hong Kong-flagged ships that are part of a ghost fleet that helps disguise Iranian oil shipments. As a result of these sanctions, India and China have begun to reduce their purchases of Iranian and Russian crude.

Trump also announced "decisive and powerful" airstrikes against Houthi terrorists in Yemen in retaliation for the campaign of piracy, violence, and terrorism against the US and other countries ships, aircraft, and drones carried out by these groups in the context of the conflict in Gaza. These attacks have cost the US and the global economy billions of dollars. The airstrike began on Saturday, March 15. In the same conflict, Hamas agreed on Friday to release Edan Alexander, the last living American hostage. Alexander, an Israeli-American, will be released along with the bodies of four other hostages, according to an agreement offered by mediators.

Fundamentals

From what initially seemed like a random policy of executive orders, a strategic direction in the actions of the Trump administration is beginning to emerge. Behind the threats and imposition of tariffs on allies and adversaries, the resistance to continue financing NATO and efforts to reduce the size of government to cut costs (DOGE) appears to be the objective of reducing the nation's gigantic budget deficit, to then refinance the heavy debt, whose service, under current conditions, makes the US economy very vulnerable. The success or failure of this strategy remains to be seen, as it will probably have to go through a politically costly recession; in any case, it is a critical process for the health of the world's largest economy. An essential part of this strategy is related to the cost of energy and will impact the fundamentals of the hydrocarbon industry.

The International Energy Agency (IEA) reduced its global demand forecast for 2025 to just over one million barrels per day, reaching 103.9 million barrels per day. The agency cited worsening macroeconomic conditions and tariff wars to justify the change. On the other hand, the IEA forecasts a greater surplus in supply, six hundred thousand barrels per day, compared to 450 MBPD last month. As we commented last week, the IEA has a history of inaccurate forecasts.

On the other side of the spectrum, OPEC maintains its demand forecast for the year. The cartel forecasts demand growth of just one hundred thousand barrels per day year-on-year in OECD countries. In contrast, in non-OECD countries, growth of approximately one million three hundred thousand barrels per day year-on-year is forecast. They also expect solid oil demand growth to continue in 2026. On the supply side, OPEC forecasts an increase in liquids from countries outside the OPEC+ sphere of one million barrels per day year-on-year in 2025. According to the cartel’s March report, the main growth drivers would be the US, Brazil, Canada, and Norway.

Interestingly, in its report, OPEC projects an increase of 100 MBPD from OPEC+, despite the announced policy of beginning to add about one hundred and twenty-eight thousand barrels per day each month, starting in April. The most logical explanations for this apparent contradiction are: 1) a much more gradual opening process than announced or 2) the projected increase is a net between what will be opened and reductions in production from Iran and possibly Russia and Venezuela due to US sanctions policy. Crude oil production from OPEC+ countries increased by 363 MBPD in February, compared to January, averaging forty million barrels per day (40.01 MMbpd), as reported by secondary sources used by OPEC.

The US oil industry had a week of very few changes. At the CERA Energy meeting, the oil "Davos" that took place this past week in Houston, oil executives indicated that they are not open to increasing production at current crude prices, so activities are more oriented towards maintenance than growth. The goal is to remunerate their shareholders better and reduce debt levels. If this strategy is maintained, supply growth forecasts for the near future will have to be adjusted, as they all include an increase of at least three hundred thousand barrels per day coming from the US. According to Baker Hughes, there were no changes in drilling activity, while the EIA reported an increase of one million four hundred thousand barrels per day (MMbpd) in commercial crude inventories; those of distillates and gasoline showed similar declines.

While US companies look cautiously at new investments, other producing countries see an opportunity. Among them are India, Mexico, and Venezuela. The latter will be covered in the section below, which is dedicated to Venezuela.

In India, parliament has given final approval to amend a decades-old exploration and production law to expand the scope of its exploration policy beyond oil and natural gas. The amendment extends the scope of the Act to include "shale oil and gas" and coal bed methane, in addition to conventional oil and gas. It also incorporates the freedom to resort to international arbitration in case of disputes and the extension of the period of agreements.

"The current global energy landscape and the hydrocarbon landscape have changed dramatically. Therefore, it was necessary to modify the law to reflect current reality and national priorities, promote ease of doing business, decriminalize provisions, and harmonize India's exploration and production framework with the practices of competing regions," said Oil Minister Hardeep Singh Puri, after the approval of the amendments by the lower house, paving the way for their enactment.

In parallel, in Mexico, a new model of private investment with Pemex was approved. The new conditions were designed with the typical ideological nationalism that led President AMLO to end President Peña Nieto's opening and have not generated much interest from private oil companies. According to some analysts, the new model is not competitive with the legal/fiscal frameworks of Guyana, Suriname, and Brazil, among others.

Specifically, the conditions associated with cost recovery and the inability to use reserves to obtain financing for development are criticized. This is a questionable decision in the context of the Aztec country's falling production, problems meeting the domestic market for gas and fuel, and indebtedness on the part of Pemex that requires assistance from the central government to service it. What they call in Mexico "a beggar with a club."

Environmental Uncertainty

Since the signing of the Paris Agreement in 2015, in which 196 countries committed to reducing their greenhouse gas (GHG) emissions and collaborating to adapt to the impacts of climate change, a series of energy scenarios have been published that would limit global warming to 1.5°C or 2°C by mid-century. Over time, each new scenario, according to the application of conventional scientific methodology, should be more concrete, detailed, and with less uncertainty. However, we are observing the opposite. Despite the time that has passed, a consensus on global energy demand has still not been reached, much less on how to meet that demand from a transitional perspective.

BP's early "Net Zero" scenarios predicted the rapid growth in renewable energies, electrification, electric vehicles, green hydrogen, and circular economy to almost eliminate fossil fuels, mainly coal and oil. Today, it can be concluded that these early forecasts have been simplistic, deterministic, and even ignorant of the interactive problems generated by attempts to force an accelerated transition.

Recent realities, such as the 2021 energy crisis, the priority of energy security due to global geopolitical conflicts, greenhouse gas emissions associated with the manufacture of solar panels, windmills, batteries, and electric vehicles, complications in energy supply chains and their components, as well as the United States' withdrawal from the Paris Agreement, demonstrate that is easier to predict the energy transition than to implement it. The constant increase in global GHG emissions suggests that, despite all efforts, the world is not currently on an emissions trajectory consistent with achieving carbon neutrality by mid-century. Therefore, to approach that trajectory, technological advances, broad cooperation rather than disqualification between different primary energy sources, and public policies capable of balancing the elements of the so-called "Energy Trilemma" must be achieved: security of supply, affordability, and sustainability.

So far, the emphasis has been on sustainability, knowing that energy security will always be the most crucial factor in truth, as we learned from the energy crisis and Russia's invasion of Ukraine. Society's need to maintain access to secure and affordable energy throughout the transition adds greater complexity and urgency. Due to existing differences in countries' energy and economic development and the geographical distribution of resources and population, the energy transition will vary considerably between regions and countries.

Emerging economies need more energy for their development, and accessing the financing level for renewable sources constitutes a bottleneck that the different COPs have been unable to resolve. In contrast, these economies may choose to use energies different from those recommended by the energy transition. Daniel Yergin developed this concept well in his book "The New Map": energy policies sometimes reflect the priorities of more politically active or influential groups while potentially overlooking impacts on broader populations that may be more concerned with immediate economic considerations.

BP is a good example of changing trends. After emerging as a leader in environmental decarbonization, BP announced plans to focus increasingly on renewable energies and gradually reduce its exposure to hydrocarbon projects. However, BP has been under pressure from investors, particularly activist Elliott Management, to change its strategy because the British multinational's performance has been inferior to that of its peers, such as Shell and Exxon. BP wants to sell 50% of its solar unit to a strategic partner.

Recalibrating the energy transition has collateral effects on the hydrocarbon industry. Fatih Birol, director of the IEA, said on Monday at CERA WEEK that there is a need to invest in oil and gas fields to support global energy security. The comment puts the energy watchdog for industrialized nations more in line with President Donald Trump's pro-drilling agenda after being pressured by fossil fuel enemies years ago to propose an end to new oil and gas projects.

Price Dynamics

An interesting stance characterized the oil market during the last week; it did not succumb to the stock market panic and extreme volatility experienced by capital markets and seemed determined to wait for the resolution of the most immediate concern of the economy: the negotiation to approve a solution to the, already repetitive, threat of shutting down the US government. Indeed, the Senate approved a provisional spending bill on Friday, avoiding a partial government shutdown, after Democrats backed down in a confrontation motivated by President Trump's campaign to cut the federal workforce. The news caused a modest rebound in oil prices, barely enough to close the week with a marginal gain of 0.3% compared to the previous week. Thus, at the close of markets on Friday, March 14, 2025, the benchmark crude oils Brent and WTI were trading at $70.58/bbl and $67.18/bbl, respectively.

Venezuela

Hard Times Ahead

After the cancellation of General License 41 and the other licenses and comfort letters assigned by OFAC to carry out activities in the hydrocarbon sector, the regime has maintained a prudent tone but announced the cancellation of repatriation flights for Venezuelans who arrived in the US illegally. They also blamed ExxonMobil's lobbying for the cancellation of Chevron's license, avoiding pointing directly at President Trump. At the end of the week, Trump's envoy, Richard Grenell, wrote on social media that flights would be restored starting March 17, information that regime officials confirmed.

The initial interpretation of this "about-face" was that negotiations between Jorge Rodríguez and Grenell were continuing and that the regime perceived a small crack through which an arrangement on Chevron's operations could slip. However, subsequent movements by the Trump administration incline us to think there is no turning back regarding the cancellation of licenses.

Indeed, the US government invoked the Foreign Enemies Act this Saturday, March 15, to combat the "invasion" of the Tren de Aragua. The decision, announced by President Donald Trump, authorizes the immediate apprehension and deportation of members of this criminal network found in US territory. According to the statement, the Tren de Aragua develops drug trafficking, extortion, kidnapping, and murder activities in coordination with the Cartel of the Suns, an organization linked to Nicolás Maduro's regime, and has been used as an operational arm of the Venezuelan regime to destabilize democracies in the region. 

Additionally, Secretary of State Marco Rubio accused the regime of trying to install an Iranian military base in Venezuela.

Meanwhile, Maduro and his administration are trying, without much success, to shore up the Venezuelan economy. The fundamental objective is to curb devaluation and, therefore, inflation. For this, they are using all elements at their disposal: public spending remains at comparatively low levels to limit printing inorganic money, controlling banks to avoid any increase in credit and trying to reduce consumption, and extraordinary efforts to maximize tax collection. In other words, they are further reducing the size of the economy. The cancellation of OFAC licenses will make these efforts less effective, and the economy will be subject to less availability of foreign currency and a reduction of interventions in the foreign exchange market.

The celebration of CERA Week, the most important oil forum in the world, was the chosen scenario to launch, with interventions by Edmundo González Urrutia and María Corina Machado, the energy program of the president elected on July 28, 2024. They indicated that it is about transforming Venezuela into the energy center of the Americas. It is an ambitious program that is only doable in democracy and is based on private investment at all levels. With a competitive legal/fiscal framework, with strong institutions that would guarantee transparency and guarantees of compliance and protection of investment, including international arbitration. As expected, the program presented was described by Maduro's regime's foreign minister, Iván Gil, as a "treasonous aberration." While paradoxically, the Maduro regime continues to call on foreign investors to go to Venezuela to develop oil.

In the internal political environment, despite no clarity regarding the proposed electoral process, it was known that the government party would launch candidates this weekend. In the opposition, internal discussions about the elections forced the executive secretary, Omar Barboza, to resign as coordinator of the opposition coalition Democratic Unitary Platform (PUD). Barboza is a leader of A New Time (UNT). This organization announced its decision to participate in the elections set for May 25, even though opposition leader María Corina Machado and most of the PUD member parties do not agree with going to the polls until the popular will of July 28 is respected.

Oil Operations

Operational activities continued practically the same as last week, with an apparent rush to maximize production and export from joint ventures with Chevron participation. Significant volumes of diluent also arrived through swaps with Reliance and Repsol and the customary import from Chevron. This bulky volume of diluents augurs sufficient availability for the blending activities of Merey 16 crude, at least during April. In addition to products produced in national refineries, the national market receives imported products mainly through swap agreements. Regarding natural gas activities, it was known that starting next week, there will be a greater supply to the petrochemical complex in Jose, which would allow partial production of ammonia and urea to begin.

Crude production during the last week averaged eight hundred and seventy-six thousand barrels per day (876 Mbpd), geographically distributed as follows: 

• West: 224 (Chevron 104) 
• East: 128 
• Orinoco Belt: 524 (Chevron 121) 
• TOTAL: 876 (Chevron 225)

National refineries processed 212 Mbpd of crude and intermediate products, with a gasoline yield of 76 Mbpd and 77 Mbpd of diesel. The average sale price of barrels marketed under OFAC licenses, net of debt payment, was $50.3/bbl, and the weighted average, using all exported barrels, was $35.1/bbl. To date, no activity indicative of cessation of operations by licensed companies has been observed; on the contrary, the barrels that went to the US are ahead compared to last month.

 

TURMOIL IN THE OIL MARKET

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

The oil market seems disoriented by the tsunami of political and economic news that has characterized the year's first quarter. Trump's tariff fluctuations with Canada and Mexico, tariffs imposed on China and the European Union, news of OPEC+ opening crude production, OFAC's suspension of licenses for operations in Venezuela, the intensification of sanctions on Iran, and the Trump/Putin saga with Ukraine and Europe, among other events, are a mix that the market finds challenging to absorb. And understandably so.

What sometimes appears to be the unstoppable advance of President Trump's policy to transform the international order suffered some setbacks this week after the Trump-Zelensky altercation. As expected, Ukraine's negotiating position and the "pre-agreements" between the U.S. and Russia are incompatible, while Europe tries to support Ukraine without alienating the White House occupant. Zelensky's demand that Americans provide "security guarantees" as part of a peace agreement with Russia is not something Trump is willing to grant, nor is it something with precedents. The complexity of these geopolitical maneuvers and the expectation that OPEC+ will increase its production in the second quarter have maintained pressure on barrel prices, bringing them down to levels not seen since late 2022.

GEOPOLITICS

During his election campaign, Donald Trump continuously claimed that when he became president, he would end the war between Russia and Ukraine in 24 hours. The recent meeting between Russians and Americans in Saudi Arabia suggested that the American plan involved direct negotiation with Putin, which would then be communicated to Ukraine and its European allies. It's unsurprising to many that this initiative for "lasting peace" in Ukraine has encountered headwinds and won't be as quickly as Washington initially contemplated.

What can be distilled from the many statements issued by the White House is that President Trump thinks that ceasing to support Ukraine directly—that is, taking a "neutral" position on the points separating Russia and Ukraine—would enable him as a good faith mediator in the conflict. This supposedly neutral stance ceases to be neutral when stating that the new borders between the two countries in conflict should be drawn based on the current positions of the battle fronts, that the resulting Ukraine should become a neutral country, and that the U.S. should not be involved in Ukrainian security. These are initial boundary conditions that Ukrainians and many European leaders consider a nod to the invader. In other words, a pro-Russian neutrality.

Trump has stated that the U.S.’s tremendous economic and military weight can force his peace plan to materialize. However, what concessions or guarantees would be extracted from the Russians in that plan is unclear. As things stand, the confrontation between Presidents Trump and Zelensky last week was only novel in that it was televised, not in the existence of differences between them. As the beginning of pressure on Ukraine, U.S. aid was abruptly suspended; even military intelligence collaboration, key to defending against Russian attacks, was suspended. Russia, neither short nor lazy, and to confirm the suspicions of many, intensified its air attacks.

Reacting to events, European leaders announced on Thursday plans to increase their defense spending and continue supporting Ukraine in a scenario disrupted by Donald Trump's change of stance regarding U.S. policies on European security. The European Union defense summit in Brussels was held amid fears that Russia, emboldened by Trump's position on the war in Ukraine, might next attack an EU country and that the U.S. would probably not come to its aid. EU leaders also expressed their support for Ukraine, but that declaration was agreed upon without Hungarian nationalist leader Viktor Orbán, a Trump ally with ties to the Kremlin. In their final declaration, European leaders emphasized that there could be no negotiations about Ukraine without Ukraine and promised to continue providing aid.

Like a shark smelling blood, China signed an important grain export agreement from Ukraine to China, expressing that trade with Ukraine would help the European country's economic recovery. China is probably sending the message that it doesn't fully subscribe to the philosophy of regional powers that some in Washington postulate. After all, Xi Jinping's foreign policy is not restricted by imaginary cartographic lines.

Despite not generating relatively high-voltage news in the Middle East, there has been activity of interest in both Israel and Syria. In parts of northwestern Syria, intense clashes continue between transitional government forces and fighters loyal to the overthrown President Bashar al-Assad; according to a BBC report, the combat has turned into a settling of scores with the Alawite minority, with at least 1,000 dead.

Meanwhile, in Gaza, having concluded the first phase of the ceasefire, negotiations for the second phase have not begun. As a pressure measure, Israel has imposed a total blockade on all goods entering the strip, demanding that Hamas release the remaining hostages. The U.S. joined the campaign. President Trump demanded that Hamas "release all hostages, now, not later," including the remains of deceased hostages. Trump made his threats after a meeting at the White House with a group of Israeli hostages who were released in the first phase of the ceasefire agreement. The president concluded that meeting by saying: "I am sending Israel everything it needs to finish the job; not a single member of Hamas will be safe if they don't do what I tell them."

Trump was also featured in news related to Iran. In a television interview, he indicated that he wanted to negotiate a new nuclear deal with Iran and that he had sent a letter to the leaders of the Islamic Republic, suggesting talks. The White House fears that Iran is rapidly approaching the capacity to manufacture atomic weapons and has reactivated its strategy of maximum pressure through oil sanctions. Iran's first reaction was that it was Trump who undid the agreement that had already existed during his first administration.

FUNDAMENTALS

The oil market has been unable to recover during the last three quarters, particularly in the previous two months. The complexity and speed of geopolitical changes have overshadowed the importance of the industry's present fundamentals. The perspectives of some international agencies, characterized by weak demand due to political decisions, have taken the helm of the market.

The International Energy Agency (IEA) reinforced this pessimism in its most recent market outlook, warning once again that global supply will exceed demand, inventories will increase, and prices will retreat in 2025. According to the IEA, 2026 will mark only the beginning of a prolonged period of turmoil in oil markets, with excess production capacity reaching unprecedented levels by the decade's end. The IEA forecasts that by 2027, global oil demand will reach only 106 million barrels per day, barely 1.5 million barrels per day above current levels. Meanwhile, supply is expected to increase to nearly 114 million barrels daily.

Given the weight of IEA projections among energy market actors and policymakers, it's not surprising that sentiment in global oil markets has reached almost unprecedented levels of pessimism in the context of global economic uncertainty. The IEA, as is well known, has a well-documented history of underestimating oil demand. The agency has underestimated demand in 13 of the last 15 years by more than 1.0 MMBPD each year. On the supply side, in our opinion, the agency is making an equally erroneous forecast, especially in its growth forecasts for "Shale Oil" in the U.S. and in other non-OPEC countries.

OPEC+ finds itself in a trap of its own making. It presents itself to the world as the guardian of oil market stability. This position justified the continuous postponements to return to the market the crude it had closed since 2022. How, then, explain the production opening in early April, when market conditions appear more precarious than when they last postponed that opening? The explanation may lie in the fact that OPEC+ believes in the market forecasts published by OPEC with estimates of growing demand and a supply that tries, unsuccessfully, to balance with demand. It could also be the case that the associated production capacity, the "closed barrels," has largely been declining (opening instead of developing). The operation they would start in April may become a redistribution of production among member countries. The reopening could prove irrelevant if the baseline they established is placed at levels lower than in previous months.

In the Russian case, crude exports are limited by the sanctions imposed on the dark fleet that moves barrels from Russia and Iran to the point that Chinese imports of crude oil were affected by almost 5% due to the interruption of deliveries from Russia and Iran to the northeastern province of Shandong. However, some analysts point out that this could indicate weaker demand. In any case, OPEC+ emphasized that these production increases could be paused or reversed depending on market conditions, maintaining flexibility to support market stability.

In the same direction, talks to resume the flow of Kurdish oil from northern Iraq to the Mediterranean port of Ceyhan in Turkey failed for the second time in a week. The main point of contention between the parties is the price that Baghdad is willing to pay the Kurds for their oil. Washington is pressuring Iraq to resume these exports as part of its "maximum pressure" campaign on Iran, which includes efforts to restrict Tehran's oil revenues.

Regarding U.S. internal statistics, its production level remains relatively constant. The Energy Information Administration (EIA) reported an increase in commercial crude inventories of 3.6 million barrels, a reduction in distillate inventories of 1.3 million barrels, and a decrease in gasoline of 1.4 million barrels. The drilling activity reported by Baker Hughes shows a minimal weekly reduction, while the number of active fracturing crews has risen by 10 since the beginning of the year. The increase in fracturing and completion operations is mainly concentrated in natural gas basins, responding to a marked increase in Henry Hub prices.

Interestingly, the Baker Hughes report shows that the number of active rigs worldwide has been reduced by more than 70 units during the last year. In that scenario, it is difficult to imagine maintaining idle production capacity at a global level.

U.S. Energy Secretary Chris Wright plans to structure a fund of up to twenty billion dollars to refill the depleted strategic petroleum reserves (SPR) to their maximum capacity, an initiative that could take years. The concept of SPR arose as a result of the 1973 Arab oil embargo. It consists of a series of "salt caverns" in the subsoil, with a capacity of 714 million barrels. Currently, they hold about 400 million barrels.

Contrary to conventional logic, trade relations between the U.S. and Canada, far from improving, have worsened with the war of tariffs and border policies. On the contrary, with the southern neighbor, the White House postponed tariffs on most imports from Mexico until April 2, following President Trump's call with his Mexican counterpart Claudia Sheinbaum, allowing U.S. refineries to continue their heavy crude imports.

In the longer term, but with the capacity to affect the fundamentals of U.S. trade and refining, is the new administration's announcement of its intention to reactivate the Keystone XL pipeline project, reversing the Biden administration's decision to cancel it. The project, which would transport oil from Alberta's oil sands to Texas, with an estimated investment of $8 billion, has faced fierce opposition from environmentalists and Native American groups for over a decade. The biggest obstacle to the project has been the back-and-forth of American politics.

Trump has promised that starting January 2025, "easy approvals" will be obtained to restart construction of the project, emphasizing the urgency of securing energy resources. The United States imports almost 4 million barrels of crude oil daily from Canada, ten times more than Mexico, the second largest supplier. Once operational, Keystone XL could move 830,000 barrels daily, reinforcing Canada's role as the leading foreign oil supplier to the United States. Washington maintains that the project will boost energy security and create jobs throughout the Midwest. However, Trump's threat to impose 25% tariffs on imports from Canada could complicate the project, while his suggestion that the neighboring country could become the 51st state adds diplomatic friction.

PRICE DYNAMICS

Two elements have affected the short-term oil market. First, the geopolitical effect was confusing and difficult to decipher. Second, the announcements from OPEC+ were interpreted as more barrels entering the market. This combination drove oil prices, mid-week, to levels not seen in the last two years. On Friday, after digesting the volumes related to the supposed OPEC+ opening (120 MBPD per month from April) in the context of global fundamentals, prices recovered part of their losses. The week ended with a net loss of around 3% compared to the previous week. As things stand, at market close on Friday, March 7, 2025, benchmark crude oils Brent and WTI were trading at $70.36/bbl and $67.04/bbl, respectively.

VENEZUELA

In Search of Alternatives

Many commentators, experts, and laypeople have dedicated themselves to clarifying the potential consequences of the cancellation of OFAC licenses granted to oil companies for their petroleum activity in Venezuela. Many think that the return of sanctions will put the regime in check and impact a population suffering from a continued humanitarian crisis. Others argue that the licenses only favored the regime and its interest groups. The fact is that the concessions of the Biden administration (GL41 and others) were designed to incentivize the regime to allow a transparent presidential electoral process with democratic guarantees, broad participation, and respect for human rights. According to the U.S. administration, this licensing regime is now revoked because of the flagrant non-compliance by the regime with what was agreed upon in 2022. More than six months after the electoral fraud of July 28, the country and the licensed oil companies seemed to have become accustomed to the fact that the northern country was not interested in enforcing the Venezuelan regime's commitments. A hope that has proven to be in vain.

OFAC has begun undoing the existing licenses by issuing a new license (GL41A), which orders Chevron to end its activities in Venezuela and its relationship with PDVSA in a one-month wind-down period. Considering the complexities of Chevron's operation, this is a very brief period, and it surprises those who expected a more extended period of six months.

The regime seems to think, or hopes, that not everything related to the oil lifeline is lost. Consequently, they have maintained a prudent position on the issue. Instead of vociferous protests against what they indeed consider the arbitrariness of the “imperialist” Trump and his Secretary of State, as would have been the typical script used in the past, the regime has concentrated on trying to convince the "friends from the north" that they are making a mistake, that the decision is not convenient for U.S. interests. They have also tried to shift the blame to María Corina Machado for the "misunderstanding" between the administrations, seeking to exploit the divisions that seem to exist in the U.S. administration regarding this issue.

Meanwhile, the regime must be rushing its contacts with those in charge of oil lobbying, and even with Mr. Grenell, including elements such as the release of hostages and reception of deportees, trusting that Trump might change his mind. However, the situation has reversed compared to a month ago; time is no longer on the regime's side. The issue of national politics around this topic is very thorny. The discussion contrasts those who think that sanctions are useless instruments that only harm the population and those who believe that without external pressure, there will be no possible change; the latter group argues that the population's suffering is only the regime's responsibility. A discussion that sometimes turns out to be Byzantine for most of the population.

Continuing on the political level, there are disagreements and internal fights in the PSUV over the nominations for the general elections. The elections may be postponed once more to try to hold them on a less agitated date and after trying to smooth out internal tensions. On the other hand, whether to vote or not emerges as the element dividing the opposition ahead of the elections. However, those who advocate participation do not have significant popular support.

On the economic level, the injection of a large amount of foreign currency into the exchange market has temporarily halted the increase in the gap between official and parallel exchange rates. However, this remains extremely high: 20% at the end of the week. The February inflation, published by the Venezuelan Finance Observatory (OVF), is 12%, reaching three-digit levels annually.

Oil Economy

The cancellation of OFAC licenses and, probably, comfort letters, which were granted to Chevron, Repsol, Maurel & Prom, Reliance, and others of lesser relevance, will have a significant effect on the oil industry and the national economy, which will end up reflecting on the population. The most critical effects correspond to the decline in production and change in export destination, which entails significant changes in the sale price of crude and products. There will also be collateral effects derived from the complexities in acquiring and managing diluents and fuels to satisfy local demand. We estimate that production will decline, to a greater or lesser degree, depending on the management of diluents: between 60 and 120 MBPD in the next 12 months, assuming that PDVSA will not invest to compensate for the natural decline (see graph).

The main impact of the reactivation of sanctions corresponds to the difference in sales prices between premium markets (U.S. and Europe) and sanctioned crude markets (Southeast Asia / China). This is due to how competitive that market is due to the presence of Russia and Iran, the high discounts required, and the complications of using intermediaries, "dark" tankers, and multiple transfers on the high seas; a separate point would be the financial "management" of those sales, which in the past has generated corruption (Al Aisami, etc.). The graph shows that gross income from crude sales was close to $12 billion (excluding volumes for Chinese debt payments) in 2024. With the reactivation of sanctions, gross income from oil sales for 2025 and 2026 is estimated at around $8 billion and $7.8 billion, respectively. As seen in the graph, if the volumetric need for diluents and fuels is maintained over time, the net income of foreign currency would be reduced to approximately half versus the licensing scenario. In that scenario, there would be substantial devaluations and increased inflation.

Oil Operations

Activities in the hydrocarbon field have developed without setbacks, perhaps due to what they call calm before the storm. Regarding natural gas, total consumption is around 1200 million cubic feet per day, of which half of the volume is produced as free gas through licenses from Cardón IV and Yucal-Placer. The other half comes from Lake Maracaibo, its surroundings, and the greater Anaco area. The gas produced in northern Monagas is burned and/or vented, about 2000 million cubic feet per day, and a smaller amount is used in regional processes. The shortage of natural gas continues to limit petrochemical production and the use of gas and gas liquids as domestic fuel.

On the oil side, there is a persistent shortage of domestic light crude and diluent to meet the requirements for diluted crude blending and refining. This shortage is managed using imported diluent, Hamaca crude for Merey crude blending and maintaining limited refining levels in Puerto la Cruz. In addition to the products produced in national refineries, the national market also receives imported products, mainly through barter agreements.

Crude production during the last week averaged eight hundred and seventy-one thousand barrels per day (871 Mbpd), geographically distributed as follows: • West 220 (Chevron 102) • East 128 • Orinoco Belt 523 (Chevron 120) • TOTAL 871 (Chevron 222)

National refineries processed 218 Mbpd of crude and intermediate products, with a gasoline yield of 79 Mbpd and 76 Mbpd of diesel. The average sale price of barrels marketed under OFAC licenses, net of debt payment, was $50.1/bbl.

March has become a critical month, as operations and crude sales to Chevron must cease on April 3 unless OFAC publishes an amendment to License 41-A. PDVSA and Chevron will seek to maximize the volume sent to the U.S. market. For now, it is believed that the rest of the OFAC licenses and comfort letters will receive the same treatment, but due to their private nature, OFAC is not obligated to publish information.

CITGO

CITGO Petroleum Corporation ("CITGO"), PDVSA's subsidiary in the U.S., reported this Friday, March 7, its financial and operational results for the fourth quarter and the year 2024. According to the report, low refining margins led to a net loss of $146 million in the fourth quarter, EBITDA of $2.0 million, and adjusted EBITDA of $15 million, compared to a net profit of $66 million, EBITDA of $281 million, and adjusted EBITDA of $290 million in the third quarter of 2024.

According to the company, a continuously deteriorating refining margin environment, combined with lower processing volume early in the year due to scheduled maintenance shutdowns executed in the second quarter, contributed to a decrease in profit in 2024 compared to 2023. For 2024, net profit was $305 million, with EBITDA of $1.2 billion and adjusted EBITDA of $1.1 billion, compared to a net profit of $2.0 billion, EBITDA of $3.3 billion, and adjusted EBITDA of $3.2 billion obtained in 2023.

Following the policy established in 2019, OFAC renewed the suspension of General License 5 (GL5R) until July 3, 2025. This suspension prevents holders of PDVSA 2020 bonds from taking control of 50.1% of Citgo Holding shares. The validity of that collateral remains under discussion in the New York court.