EXPECTATIONS OF OVERSUPPLY AFFECT THE OIL MARKET

 El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA   

The oil market this week was marked by resilience amid expectations of excess supply and uncertainty about global demand. OPEC+ decisions and geopolitical tensions centered on the U.S., Russia, Ukraine, and Venezuela added volatility to oil prices.

The increase in commercial crude inventories in the U.S., doubts about the veracity of OPEC's numbers, and the International Energy Agency's (IEA) change in perspective further confused market participants. Additionally, on Friday, a cooling system failure at the CME Group (Chicago Mercantile Exchange) data center suspended futures and options operations, interrupting oil futures trading as well as equities, bonds, and currencies, just as prices were recovering.

CME Group is the leading international derivatives market and the venue where investors manage risks. Fortunately, at the time of the suspension, operations were at relatively low levels due to the U.S. Thanksgiving holiday.

GEOPOLITICS

News about negotiations on peace plans in the Russia-Ukraine conflict, or about the easing of sanctions-related tensions on Russian crude, provided some relief to markets, helping counter potential supply risks and preventing price spikes.

Ukraine and Russia

For Ukraine, a week is a long time. On November 19, reports emerged about a "peace plan" secretly negotiated between Russia and the U.S., which Ukrainians perceived, at first, as a demand for capitulation. By the weekend, European, Ukrainian, and American officials met in Geneva for an emergency summit to review that proposal. On November 26, American and Russian negotiators finalized their consultations in Abu Dhabi on the revised draft. Those familiar with the latest conversations say the document is still being revised. Ukraine is more satisfied with the latest version, but no one believes Vladimir Putin will accept it.

The negotiation process is tilting against Ukraine, which would lose territory without any guarantee of future security. The talks seek to reconcile Russian demands with Ukrainian concessions—undoubtedly two antagonistic positions that negotiators will have to reconcile if a reasonably happy ending is desired. The prolongation of the conversations, which weakened last week's hopes for a quick resolution, has kept the oil market stumbling as alleged details about the negotiations are leaked. Geopolitical volatility continues, and hopes of a possible ceasefire between Russia and Ukraine have, for now, neutralized supply concerns stemming from new U.S. sanctions against major Russian producers.

To try to accelerate the process, U.S. envoy Steve Witkoff is scheduled to travel to Moscow next week along with other senior U.S. officials to hold talks with Russian leaders about a possible plan to end the nearly four-year war in Ukraine, the deadliest in Europe since World War II.

Meanwhile, a Ukrainian attack on the port of Novorossiysk damaged one of three loading points at the Caspian Pipeline Consortium (CPC) terminal, through which more than 1% of global oil exports are shipped. Analysts stated that shipments from the terminal have been reduced by half due to the attacks. In any case, Chevron stated on Monday that tanker loading had resumed.

Also on Friday, several explosions rocked two tankers from Russia's shadow fleet in the Black Sea, near the Bosphorus Strait in Turkey, causing fires on board and initiating rescue operations, Turkish authorities and sources said. The tankers Kairos and Virat are receiving assistance in the Black Sea. Russia has also intensified its attacks on Kyiv to pressure the Ukrainian government, which is simultaneously facing a corruption scandal in its senior government.

Iraqi Kurdistan

Another region in conflict is Iraqi Kurdistan. The Khor Mor gas field, one of the largest gas fields in Iraq's semi-autonomous region, has been shut down following a rocket attack that hit a storage tank and caused a fire, the field's joint operator said Thursday, Dana Gas, a company based in the United Arab Emirates. A new condensate storage tank and export units were affected. The rocket attack is the most serious on a field in Kurdistan since mid-July, when three days of drone attacks on oil fields in the semi-autonomous region paralyzed much of the production.

Neither Kurdistan's oil production nor exports were affected. Still, the Khor Mor gas field, which supplies gas for domestic electricity generation and is in a precarious production state, was affected, accounting for 10% of total generation. The attack is presumed to have been perpetrated by militias backed by Iran and Iraq.

Middle East

In the Middle East, an intermittent ceasefire continues, as Israel has continued eliminating Palestinian operatives or detaining them when terrorist activity is detected in the area. Israel maintains that this is part of the next phase of the agreements: the disarmament of Hamas. In a curious development, Israeli Prime Minister Benjamin Netanyahu requested a pardon from the nation's president in the corruption trial he is facing, a request that appears to pose significant legal and political complexities.

FUNDAMENTALS

OPEC+ policies, which include moderate production increases, seek, according to the cartel, to maintain market stability, although doubts persist about its ability to prevent a surplus in the coming months. There are also doubts about the sincerity of its production announcements; some renowned analysts question whether even measurements from its secondary sources could be accurate.

We believe that the capacity to add incremental production immediately is not possible, except in exceptional cases such as Saudi Arabia and the United Arab Emirates (UAE), though not materially. Moreover, productions reported by secondary sources, unlike those of producing countries, better reflect reality. Some members of the group, which produces approximately half of the world's oil, have been increasing production since April to gain market share, but they appear to have reached their limits, for now.

OPEC+ Decisions

This last Sunday in November, in a virtual OPEC+ meeting, Saudi Arabia, Russia, Iraq, the United Arab Emirates (UAE), Kuwait, Kazakhstan, Algeria, and Oman "reaffirmed their decision, made on November 2, 2025, to pause production increases in January, February, and March 2026 due to seasonality."

This apprehension about volumes, coupled with the announcements of increases that OPEC+ has been making, somewhat exaggerated in our opinion, has created a scenario of excess supply at levels only seen during the pandemic, which most oil market participants seem to consider likely. This overproduction, if it materializes, will keep prices depressed during December and much of 2026.

Global Production Outlook

The countries that, according to forecasters including the International Energy Agency (IEA), are expected to increase production over the next 13 months are the U.S., Canada, Brazil, Guyana, and Argentina. Guyana, which has experienced vertiginous development, has already reached a maximum production of 900,000 barrels per day (Mbpd) with the incorporation of the fourth FPSO (Floating Production Storage and Offloading) unit, and no incremental production is contemplated until the arrival of the 5th unit in 2027. As for Brazil, the incorporation and ramp-up of new FPSOs barely exceed the decline of fields in production. Argentina, on the contrary, will grow continuously but slowly; we must remember that this is an unconventional development with its enormous declines. Thus, the supply increase, both from OPEC+ and from non-cartel countries, could be more modest than the forecasts the market seems to be following.

United States Situation

In the U.S., drilling rig and hydraulic fracturing crew activity have declined so far this year, complemented by a considerable drop in DUC wells (drilled but uncompleted wells): a 25% reduction since January 2025. According to Baker Hughes, this week, probably due to price prospects, the reduction in active rigs accelerated; we observed a drop of 12 rigs in oil activity and a modest increase of 3 rigs in gas basins. A combination incapable of orchestrating short-term growth.

The Energy Information Administration (EIA) reported that commercial crude inventories in the U.S. increased by 2.7 million barrels; the market reacted to the news, but the movement was due to higher crude imports and not to a suggestion of limited demand.

Change in IEA Demand Outlook

On the demand side, the International Energy Agency (IEA) predicted in 2023 that the global peak in oil demand would likely be reached in 2030, as governments worldwide introduced plans for a green transition and fossil fuel companies began diversifying their portfolios to include renewable alternatives. However, this month the IEA retracted this prediction, stating that oil demand could continue to grow until 2050. This reflects a change of course by many countries in their climate commitments and by oil sector companies in their efforts to diversify their energy sources.

In the IEA's World Energy Outlook report, published in November, the organization retracted its earlier prediction, suggesting that global oil and gas demand could continue to grow until mid-century, 20 years longer than anticipated. Demand will be driven by industry, residential energy, and the technology sector, as various companies invest heavily in high-energy-consuming data centers to support the deployment of advanced technologies such as artificial intelligence (AI).

According to the Current Policies Scenario (CPS), the IEA predicts that oil demand will reach 113 million barrels by 2050, representing a 13% increase over 2024 consumption, as governments prioritize their energy security over the transition to renewable energy. This year, for the first time since 2019, the IEA used a scenario based on existing government policies rather than climate ambitions, perhaps due to pressure from the Trump administration's policy changes.

Other Market Factors

On the other hand, growing expectations of a December interest rate cut by the U.S. Federal Reserve limited the decline in crude prices. A lower rate typically stimulates economic growth and increases oil demand.

On the other side of the world, China's independent refineries, the so-called teapots, have just received their new increased crude import quotas for 2026. And the timing couldn't be more opportune, as significant volumes of sanctioned crude are seeking destinations in China; these are discounted Iranian, Venezuelan, and Russian cargoes that generally arrive with altered documentation.

Price Behavior

Oil prices on Thursday showed signs of a rebound at the end of the week, but a data center outage forced CME Group to suspend futures and options trading, disrupting oil futures as well as equities, bonds, and currencies. Barrel prices failed to lift their heads and were heading toward their fourth consecutive monthly loss.

Low trading volumes in the U.S. following Thanksgiving, aggravated by a CME blackout, have contributed to price calm. It is unlikely that OPEC+'s announcement will influence confidence in either direction.

Thus, at the close of markets on Friday, November 28, the benchmark crudes, Brent and WTI, were trading at $62.38 and $58.55/bbl, respectively, practically at the same level as at the close of the previous week.

VENEZUELA

A Country Under Suspicion

Venezuela's geopolitical situation continues to be marked by significant tension with the U.S., which this week escalated to warnings of Venezuelan airspace closure and an increase in U.S. military presence in the Caribbean.

U.S. President Donald Trump issued warnings about a possible closure of Venezuelan airspace, characterized by Caracas as a "colonialist threat." This situation led to the suspension of direct flights to Venezuela by most foreign airlines serving the country. Nicolás Maduro's government responded by putting the military aviation on alert, activating defense systems, and unilaterally canceling the routes of airlines that had suspended their flights. At the same time, social and political leaders perceived as opposition have been arrested, without respecting the rights that the Constitution guarantees to all citizens.

Despite the military escalation and rhetoric, there were reports of a telephone conversation between Trump and Maduro, which the U.S. president confirmed on Sunday, November 30, although without giving details about what was discussed. Actions such as the U.S. designation of the "Cartel of the Suns" as a terrorist group generated speculation about possible future implications. Visits by the Secretary of Defense to deployed troops, by General Cane to Trinidad, and the increase in the military presence in the Dominican Republic, as well as joint U.S.-Guyana military exercises, did not help calm the situation.

On the other hand, in Washington, Congress has initiated an investigation into the probability that military actions against some vessels allegedly transporting drugs and the killing of their crews constitute war crimes. An investigation that provides ammunition to those who oppose U.S. military pressure in the Caribbean.

Economic Situation

Regarding the economy, the fight against the exchange rate gap has become more complex than expected. The shortage of foreign currency has not been addressed by reducing public spending during months with traditionally higher disbursements, nor by sliding the official exchange rate; the priority supply of foreign currency at rates considerably higher than official ones has not been effective either, due to problems in managing cryptocurrencies to avoid American interference. In any case, the official exchange rate devalued to nearly 250 Bs./$, a year-to-date devaluation of around 375%; the exchange rate gap stubbornly remains at 42%. Inflation is neither published nor discussed in Venezuela, but Prof. Steve Hanke, a scholar of the matter, anticipates that inflation is on the threshold of hyperinflation.

Oil Operations

Diluent Situation

In the oil sector, amid continued reliance on Russian naphtha as a diluent, Venezuela is once again turning to Chevron to secure naphtha supplies. Indeed, the tanker Nave Neutrino, chartered by Chevron, is transporting diluent from the Virgin Islands. Naphtha supplies are scarce in Venezuela following an explosion at PetroCedeño that reduced the capacity to separate diluent from virgin crude, and the problems faced by one of the sanctioned ships attempting to reach the Jose terminal.

During the week, the operational situation was marked by continuity of activity, despite the aftermath of the recent accident at PetroCedeño. There was also a reduction in natural gas availability at the Jose complex in the eastern part of the country, which affected petrochemical activity and had repercussions on foreign currency flow.

Average production for the week was eight hundred sixty thousand barrels per day (860 Mbpd), due to the production shutdown related to the accident, geographically distributed as follows:

• West: 231 (Chevron: 108)
• East: 117
• Orinoco Belt: 513 (Chevron: 127)
• TOTAL: 861 (Chevron: 235)

National refineries processed 226 Mbpd of crude and intermediate products, yielding 76 Mbpd of gasoline and 78 Mbpd of diesel.

In the petrochemical sector, one methanol plant was shut down due to a lack of natural gas, and Fertinitro plants are at risk of shutdown due to excess inventory.

November's export, with just a few days left to close the month, is unclear. We estimate that an average of 630 Mbpd of crude will be exported this month, mostly to China, with about 127 Mbpd to the U.S. via Chevron's license and 40 Mbpd to Cuba.

We estimate the weighted price of exported crude at $30.6/bbl.

CITGO

In the Federal Court of Delaware, Judge Leonard Stark approved on Tuesday, November 25, a $5.9 billion offer from Amber Energy, a subsidiary of Elliott Investment Management, in the court-organized auction of PDV Holding, the parent company of Citgo Petroleum, clearing the way for the sale of PDV Holding. The offer that Judge Stark considered the most appropriate also provides a $2.1 billion payment to holders of the PDVSA 2020 bond, a defaulted Venezuelan bond secured by Citgo shares, whose legality is still being litigated in New York courts.

"If OFAC grants a license to Amber Energy, and if this Court's judgment is not reversed on appeal, many of the judgment creditors who have spent years and millions of dollars trying to recover billions of dollars in judgments, to compensate them for the harm inflicted by one or more of the Venezuelan parties years or decades ago, will finally obtain relief," wrote Judge Stark.

In any case, and as expected, lawyers representing Venezuela, PDVSA ad hoc, Citgo Petroleum, and its parent companies appealed Judge Stark's decision on Monday, December 1, to the U.S. Third Circuit Court of Appeals. The appellants allege that "the forced sale process has been characterized by deficiencies and irregularities, including a conflict-of-interest involving court advisors." Other actors in the process, creditors and bidders in the auction, are also expected to file appeals.

This endless and sad saga will continue at least until 2026, according to legal experts.

[1]: International Analyst
[2]: Nonresident Fellow Baker Institute

 

PEACE PLAN FOR UKRAINE AND RUSSIA PUSHES OIL PRICES DOWN

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA   

The resumption of Russian port operations in the Black Sea, the entry into force of sanctions against Russian oil companies, and the decline in U.S. commercial crude inventories maintained volatility in the oil market. However, the news that weighed most heavily on prices was the possible resolution to the military conflict between Ukraine and Russia, after it became public that the White House had agreed with the Kremlin on a plan to end the conflict.

Indeed, following the apparent success of President Trump's 30-point plan for Gaza, at least regarding the cessation of hostilities, the market reacted to the announcement of a 28-point proposal to end the war between Russia and Ukraine. The mere fact that Putin appears inclined to accept said proposal considerably reduced the perception of geopolitical risk that had been established in the markets due to the continuous "give and take" of the conflict, which has resulted in Russian advances in eastern Ukraine and significant deterioration of Russian oil infrastructure. Added to this were sanctions that were eroding Russia's oil supply to the market. The new expectation of security in Russian oil supply kept oil prices below those of the previous week.

Meanwhile, refined product markets are experiencing a boom, as middle distillate (gas oil) refining margins reach their highest level in nearly three years, primarily driven by European Union (EU) sanctions on Russian petroleum products and the fact that more than 15% of Russian refining capacity has been affected by Ukrainian attacks.

In Belém, Brazil, COP30 ended with considerable disagreements and some agreements well below the expectations of organizations seeking to accelerate the reduction of fossil fuel use. China's silence and the U.S.'s absence left Europeans bearing the weight of financial commitments. After 30 of these conferences, perhaps it is time to reconsider whether this is still the mechanism for advancing climate change management agreements.

GEOPOLITICS

The strategic, commercial, and technological rivalries between the U.S. and China continue to be the main catalysts of 21st-century geopolitics, influencing the global economy, supply chains, and technological governance. Russia is making efforts to insert itself into that select group, using its nuclear arsenal as a banner and supporting China in its objective to reconfigure the world order and challenge the existing multilateral system. Meanwhile, Europe (including the United Kingdom) debates whether it has a role to play in these scenarios.

Against this backdrop, short-term geopolitics unfolds at the world's tension points: Eastern Europe, the Middle East, and a relatively new tension between Japan and China regarding Taiwan, an immediacy that may or may not extend over time.

Ukraine and Russia

This week, the focus returns to Russia's invasion of Ukraine. Ukrainian President Volodymyr Zelensky faces a confluence of crises that tests his convening power in a country exhausted by nearly four years of devastating confrontation with Russia.

Pressure on Zelensky has intensified as Trump pushes a proposal developed together with Russia that would require significant territorial and military concessions from Ukraine—and, apparently, few from Russia—to end the war. According to Reuters, Kyiv would have to relinquish the entire Donbas region and significantly reduce its army, terms that Ukraine's supporters have long considered, for practical purposes, a surrender. In parallel, Zelensky is trying to contain the internal repercussions of a corruption scandal involving senior officials and other associates.

All this unfolds while Russia makes slow but steady advances in eastern Ukraine and relentlessly bombs power plants, causing severe electricity outages as colder weather sets in. However, it should not be forgotten that, contrary to what the Trump proposal tacitly assumes, Russia also faces economic and military problems.

Zelensky said he has received a 28-point peace plan, drafted jointly by the U.S. and Russia, and that he is willing to work on it immediately. He also expects to speak with U.S. President Donald Trump in the coming days. For now, EU leaders and Zelensky are holding urgent consultations at the G20 summit in Johannesburg, seeking a common position amid the geopolitical earthquake driven by the White House. The U.S. plan for Ukraine breaks into the G-20, notable for the absence of Donald Trump, Vladimir Putin, and Chinese President Xi, although these details do not seem to affect the market's immediate reaction.

Despite the complexity of the negotiations that may or may not occur, the market seems to interpret the process as a light at the end of the tunnel, and oil prices fell sharply on Friday, without assigning much value to the sanctions against Russian oil companies, Rosneft and Lukoil, which were about to enter into force.

Middle East

Regarding the conflict in the Middle East, the UN Security Council is scheduled to vote this Monday on a resolution to take Gaza beyond the fragile truce that entered into force last month, toward a more sustainable peace and reconstruction. Its main features include a Peace Board, trained by Egypt, to administer Gaza for two years. The Board would oversee the disarmament of Hamas and other factions—a key Israeli demand—as well as Gaza's reconstruction, with support from international forces and Palestinian police.

The resolution is based on President Trump's peace plan, presented in September, but already faces opposition from some members of the Israeli government and could suffer a veto from Russia, China, or both, when the vote comes.

FUNDAMENTALS

The dynamics of oil fundamentals did not impress the market much, despite a 3.4 million-barrel drop in U.S. commercial crude inventories, which remain below the range of the last 5 years. Crude production potential generation activities, both in rigs and fracturing crews, show ups and downs but remain at constant average levels, maintaining stability.

At the same time, the most recent U.S. employment report, published on Thursday, dispelled hopes of a Federal Reserve interest rate cut in December. The data showed an unexpected addition of 119,000 jobs for September; the unemployment rate increased to 4.4% and previous months were revised downward. Markets interpreted the data as a weakening of the argument for imminent monetary easing, which, in turn, weakens support for oil demand.

"Given the Fed's recent more aggressive turn and the lack of scheduled official data before the December 10 FOMC meeting, it is understandable that the market thinks the next move will not come until early 2026," ING bank analysts said in a note.

China

On the Chinese side, oil demand appears to have recovered, based on the high refining margins prevailing in the market, to the point that the central government increased crude quotas for private refineries (teapots). The reduction in Russian crude purchases by both China and India is affecting the scheme and volume of Russian exports.

China is importing unusually large quantities of crude oil from Indonesia, a trend that, according to traders, is intended to mask shipments of sanctioned Iranian crude transshipped through Malaysian waters amid increased scrutiny of Malaysian-origin shipments.

Price Dynamics

Over the last week, oil prices continued to decline amid concerns that a global supply surplus will materialize, but above all due to the reaction to the diplomatic rapprochement between the U.S. and Russia regarding the war in Ukraine.

Thus, at the close of markets on Friday, November 21, the market crudes, Brent and WTI, were trading at $62.56/bbl and $58.56/bbl, respectively, a loss of almost 3% from the previous week’s close.

VENEZUELA

Change or Continuity?

Over the weekend, more than six airlines canceled flights to and from Venezuela after the United States Federal Aviation Administration (FAA) warned civil aviation of an "increase in military activity" amid the deployment of U.S. forces in the Caribbean, the Venezuelan airline association told AP.

These unexpected cancellations are the most recent result of the escalation of military tensions between the U.S. and Venezuela, nominally against the "Cartel of the Suns." Washington assures that this cartel, which it designates as drug trafficking, is headed by Nicolás Maduro. This cartel, as announced by U.S. Secretary of State Marco Rubio, will be designated as a foreign terrorist organization on Monday, November 24. Designating organizations as foreign terrorist groups grants U.S. law enforcement and military greater legal powers to attack and dismantle them, hence the warning about airspace.

On the other hand, perhaps as the other jaw of the pincers, President Donald Trump assured this Friday that he will soon speak with Venezuelan leader Nicolás Maduro to tell him "something very specific." So the credible military threat in the Caribbean and its legal justification under U.S. laws, and the supposed pending conversation between Trump and Maduro, seem to presage that something is about to change. The only certainty is that the current situation is unsustainable from any perspective.

In the Caribbean, the tanker 'Seahorse', which was transporting Russian naphtha to Venezuela, was intercepted by the United States Navy. The tanker changed course, not without attempting twice more to reach its destination. Finally, it returned to the Cuban port of Matanzas, where it had been, and from where it set sail again with an unknown destination. This naval skirmish (blockade?) affects the availability of diluent for mixing Merey 16 crude.

On the other hand, the economy continues to be affected by the geopolitical environment of sanctions and, now, by a possible naval blockade. Despite the administration's sacrifices in public spending and an increasingly disproportionate distribution between the foreign currency offered at the official rate and that provided on cryptocurrency platforms at considerably higher levels, the gap stubbornly remained above 40%. At the close of markets, the official exchange rate stood at 243 Bs./$, up 3% from the previous week.

The National Assembly (AN) met again this Thursday, November 20, to authorize a 15-year extension for the oil joint ventures Petroperijá and Boquerón. Both operators promise to produce 91 million barrels of crude between 2026 and 2041, that is, 12 Mbpd through Petroperijá and 4 Mbpd from Boquerón, averages higher than their current production. However, if materialized, they would be relatively modest objectives for what the country needs to achieve.

Oil Operations

The Jose oil and petrochemical complex, on the country's northeastern coast, was the scene this week of a new industrial accident. At the PetroCedeño crude upgrader, the atmospheric distillation tower exploded due to exposure to abnormal pressures, likely caused by inadequate specifications for the processed crude. The explosion caused a fire that caused substantial damage to the facilities, affecting both production and refining. As is customary, PDVSA has not adequately reported on the event.

Due to the crude production shutdown related to the accident, production averaged eight hundred fifty-one thousand barrels per day (851 Mbpd) for the week, geographically distributed as follows:

·       West: 227 (Chevron: 108)

·       East: 117

·       Orinoco Belt: 507 (Chevron: 125)

·       TOTAL: 851 (Chevron: 233)

National refineries processed 231 Mbpd of crude and intermediate products, yielding 80 Mbpd of gasoline and 77 Mbpd of diesel.

The petrochemical sector continues to be affected by limited natural gas availability, with operations at methanol plants (Metor and Supermetanol) and fertilizer plants (Fertinitro) below their design capacity. In contrast, the SuperOctanos plant remains out of service.

November exports are averaging below 610 Mbpd due to delays in loading vessels during the Jose accident and the availability of crude in specification. Destinations for exported crude and products are limited to China, the U.S., and Cuba.

We estimate the weighted price of exported crude at $30.1/bbl.

[1]: International Analyst [2]: Nonresident Fellow Baker Institute

 

OIL PRICES OSCILLATE BETWEEN FORECASTS AND REALITIES

El Taladro Azul

M. Juan Szabo [1] y Luis A. Pacheco [2]

Published  Originally in Spanish in  LA GRAN ALDEA  

Judging by the apparent convergence of opinions from many analysts, the oil market is heading toward a scenario of supply surplus; analyses that seem to reinforce each other in a classic example of "Groupthink." Even OPEC's November report, which has consistently argued that there is no such surplus, has been interpreted by some as proof of the supposed supply surplus for 2026. However, it's unclear how anybody can reach this conclusion. In any case, this supposed cohesion of opinions has had a substantial bearish impact on oil prices and the activities surrounding them.

On the other hand, some geopolitical factors have partially offset this trend. We refer to the drone attacks carried out by Ukraine that have put Russia's most important Black Sea terminal out of service, also affecting the CPC (Caspian Pipeline Consortium) terminal that handles Kazakhstan's exports, and to Iran's interception of a product tanker sailing off the coast of the United Arab Emirates (UAE) and hijacked to Iranian waters. Similarly, additional attacks against Russian refineries continue to deteriorate the Russian economy's capacity to serve its domestic markets and generate sufficient exports to finance its budgets, particularly the military budget.

Thus, crude oil prices remained under pressure, as the narrative of supply surplus managed to eclipse the disruptions in Russian supply. Crude recovered from its lows, but concerns about a supply surplus persist, creating very high price volatility.

GEOPOLITICS

The geopolitical variable is once again taking control. Ukraine's strategy of targeting Russian refining, storage, and dispatch facilities, to restrict its revenues from hydrocarbon sales and create chaos in the Russian domestic market, appears to be succeeding. Indeed, on Friday, the Russian port of Novorossiysk, in the Black Sea, temporarily suspended oil exports, about two million barrels per day, following a Ukrainian attack with missiles and drones. The attack could affect Kazakhstan's exports through the CPC system. The refinery in the Saratov region and its storage yard were also severely damaged by Ukrainian attacks.

This week's combined attack was one of the largest against Russian oil export infrastructure in recent months, following the intensification of Ukraine's strategy against Russian refineries, storage centers, and loading terminals. The paralyzing effect of these attacks is compounded by the sanctions imposed by the U.S. and the European Union (EU) on Russian oil and its operating companies.

Another element that could lead to additional conflict in the Middle East is the interception by Iran's Revolutionary Guard (IRGC) of the Marshall Islands-flagged product tanker, M/V Talara, and its transfer to Iranian waters after passing through the Strait of Hormuz; the vessel's operator reported losing contact with the crew. The tanker was sailing off the coast of the United Arab Emirates (UAE) and was carrying a cargo of high-sulfur gas oil from Sharjah, UAE, bound for Singapore.

These events remind us of the fragility of energy systems in regions plagued by armed conflicts and sanctions, which translates into incremental volatility and upward pressure on prices.

Finally, after 43 days of the U.S. federal government shutdown, President Trump signed the budget agreement. The law signed by the president guarantees funding for most federal agencies until midnight on January 30 of next year. Although six Democratic senators decided to vote "across the aisle," which allowed the parliamentary agreement to be reached, the majority of the Democratic caucus believes that the underlying issues have not been resolved, which guarantees a new impasse in February 2026.

FUNDAMENTALS

Every month, OPEC publishes a report on the oil market that is read by analysts searching for signals about the direction the group foresees. The most recent one has caused waves in the market, not because of what it contains, which seems to be more of the same, but because of the effect it has had on prices. According to the interpretation of some analysts, the cartel now foresees a balance in the global market for 2026, due to increased production from non-OPEC countries and inventory recovery, which would represent a change from its previous forecast of a deficit.

This interpretation, allegedly extracted from the November report, triggered a wave of selling that affected prices by 4%. We say allegedly because, according to our reading, OPEC's November report maintains its demand outlook and makes minor adjustments to the incremental production from non-OPEC+ contributions (from 100 to 200 Kbpd).

On the supply side, the report does not mention that OPEC+ countries' production has fallen by 400 Kbpd between August and October. Additionally, and not mentioned in OPEC's report, the organization's shut-in crude volumes (referred to as spare capacity) are practically non-existent, and no determined effort is being made to reverse this trend.

OPEC's analysis projects that liquid production from non-OPEC countries will increase by approximately 1.3 Million Barrels per Day next year. In comparison, global oil demand is expected to rise by 1.6 million barrels per day to 106.2 Million Barrels per Day, in line with previous projections. The deficit that OPEC had forecast in October for 2026 will remain or tend to disappear, depending on the incremental volumes assigned to OPEC+. For now, as we mentioned, OPEC+ does not appear to be in a position to add additional volumes.

IEA Report

Another notable development is the International Energy Agency (IEA) 's monthly report, which was also published. The report maintains its forecast of a record supply surplus of more than 4 million barrels per day next year. This projection is based on the expectation that oil supply will increase by another 2.5 MMbpd next year, while demand will increase by only 770 Kbpd.

It's noteworthy that among the countries listed in that report as sources of the largest non-OPEC+ supply additions, none shows material changes in the next 14 months. In fact, growth forecasts in Brazil and Canada have diminished compared to forecasts from a few months ago from the same countries and the companies operating there.

In any event, given the preponderance of sources projecting a supply surplus, we will take as a base case for 2026 one of low prices with a downward trend. The scenario for our internal numbers will remain based on demand related to economic and population growth, and on supply driven by non-OPEC+ growth and by OPEC+ barely replenishing the natural decline of fields. This latter combination would keep supply, at best, in balance with demand and, consequently, prices would reach $70/bbl (Brent).

Current Policies Scenario

The IEA has also published its annual energy report, WEO 2025, which has generated news for the reincorporation of the Current Policies Scenario (CPS). The IEA had quietly abandoned CPS in 2019, under heavy pressure from environmental activist groups. Instead, it opted for a "Stated Policies Scenario" (STEPS), an "exploratory" scenario based on speculative climate policies. The IEA's use of STEPS raised concerns about the energy transition, which distorted projections of future oil and natural gas demand.

The resurrection of CPS brings back to the table the continued growth of fossil energy demand and distances the possibility that the goals of COP21, the Paris Agreement, can be achieved, and postpones the so-called "demand peak" that the IEA had been projecting.

Global Carbon Budget

In the same vein, the annual "Global Carbon Budget" report was published. In that report, one can read the following:

"With CO₂ emissions still rising, keeping global warming below 1.5°C is no longer viable," said Professor Pierre Friedlingstein of Exeter's Global Systems Institute, who led the study.

"The remaining carbon budget for 1.5°C, of 170 billion tons of carbon dioxide, will disappear before 2030 at the current emission rate. We estimate that climate change is now reducing the combined land and ocean sinks, which is a clear signal from planet Earth that we need to reduce emissions drastically."

Balancing energy needs and addressing climate change will continue to be an equation to be solved.

PRICE DYNAMICS

Over the past week, oil prices experienced a downward trend, primarily due to the potential for a global supply surplus, concerns about demand, and the rise in commercial crude inventories in the United States. However, at the end of the week, factors such as Ukrainian attacks against oil infrastructure in Russia and the hijacking of a tanker by Iran near the Strait of Hormuz provided temporary support for prices.

Thus, at the close of markets on Friday, November 7, the benchmark crudes, Brent and WTI, were trading at $64.39/bbl and $60.09/bbl, respectively, representing a 1.2% rebound from the previous week's close.

VENEZUELA

"Southern Spear" and Other Confusions

The accumulation of U.S. troops, warships, and combat aircraft continues in the Caribbean Sea region, to which this week's arrival of the aircraft carrier Gerald Ford was added. On Thursday, November 13, U.S. Secretary of Defense Pete Hegseth announced Operation Southern Spear on his "X" social media account, without providing further details about when and what military actions might take place. This operation has the theoretical purpose of combating drug trafficking and narco-terrorism in the Caribbean Sea and the Western Hemisphere, and defending the northern country against drugs. The operation involves the mobilization of the U.S. military, navy, technology, and air forces, described as the largest since the Gulf War.

The operation unfolds in a context of high tension between Washington and Caracas. Venezuela has denounced that the operation constitutes a plan to destabilize it and justify a possible military intervention, which has drawn criticism from some countries in the region: Colombia, Brazil, and Mexico. So far, it is reported that activity has been limited to attacks against 20 "narco-boats" in the Caribbean Sea and the Pacific Ocean, which have caused at least 79 casualties.

As if the tension were not already high enough, on Sunday, the 16th, the State Department issued a press release from Secretary Rubio:

"The State Department intends to designate the Cartel of the Suns as a Foreign Terrorist Organization (FTO), effective November 24, 2025. Based in Venezuela, the Cartel of the Suns is headed by Nicolás Maduro and by other high-ranking individuals of Maduro's illegitimate regime, who have corrupted Venezuela's military, intelligence, legislature, and judiciary. Neither Maduro nor his cronies represent the legitimate government of Venezuela..."

That same Sunday, President Trump, in an impromptu interview, added further confusion to the situation, suggesting they had not yet made a decision on an attack, but at the same time stated they had received signals from Caracas to initiate discussions they might consider. It's difficult to discern whether this confusion is by design or the product of conflicting visions within the U.S. administration.

Venezuelan Economy

Regarding the Venezuelan economy and the administration's main objective, the process of closing the gap between the official Bs./$ exchange rate and alternative rates is making little progress. The combination of fewer foreign currency revenues from hydrocarbon sales, a lower level of tax collection, and problems in settling foreign currency sales in USDT widened the gap for importers to satisfy their dollar needs. The difficulties faced in receiving "stablecoins" are attributed to a blockade exercised by OFAC on the process, which is foreseeable given the closeness of the USDT process to the U.S. Treasury. The cryptocurrency used may be replaced, but in exchange for liquidity and availability.

Thus, the gap between foreign exchange markets again exceeded 40%, with an official exchange rate of around 235 Bs./$, which further pressures inflation, which is reaching worrying levels.

Oil Operations

The oil situation has not achieved the announced growth, partly because Chevron's current license is considerably less attractive than its previous one, License 41, and external and internal political tensions keep the country’s risk so high that it scares away investment even under the protection of the Anti-Blockade Law.

Companies that benefited from OFAC licenses, Repsol and Maurel & Prom, are waiting for developments, carrying out only maintenance activity. OPEC's most recent publication confirms that Venezuelan production has slowed to about 950 Kbpd, according to its secondary sources while our estimates detect a similar trend, but at levels of 860 Kbpd.

Following the unexplained accident in the Jose area, located in the east of the country, which resulted in the emission of polluting clouds that covered the region, the operation returned to normal. There are no official estimates of the damage to facilities or the commercial value of the coke and sulfur incinerated in the upgrader complex.

Due to a lack of investment and challenges with diluent logistics, all activities are currently focused on reducing deferred production. Crude national output has stabilized at around 860,000 barrels per day (860 Kbpd).

Average Weekly Production

Average weekly production distributed geographically was as follows:

·       West: 227 Kbpd (Chevron: 108)

·       East: 117 Kbpd

·       Orinoco Belt: 516 Kbpd (Chevron: 125)

·       TOTAL: 860 Kbpd (Chevron: 233)

Refining and Petrochemicals

National refineries processed 234 Kbpd of crude and intermediate products, yielding 80 Kbpd of gasoline (of dubious quality) and 77 Kbpd of diesel. The PetroPiar upgrader continues to operate normally.

The petrochemical sector continued operating the methanol plants (Metor and Supermetanol) and fertilizer plants (Fertinitro) at the levels that gas availability allows; one of the ammonia trains is under maintenance, while the SuperOctanos plant remains out of service.

Exports

November exports are averaging below the scheduled 600 Kbpd, due to delays in vessel loading during the Jose accident and the availability of Merey 16 due to blending problems. Destinations for exported crude and products are limited to China, the U.S., and Cuba.

We estimate that the weighted price of exported crude is $30.4 per barrel.