OIL MARKET IN INERTIAL MODE

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

Between October 25 and November 1, 2025, the oil market was influenced by expectations that OPEC+ would announce a new production increase and developments in the trade war. Prices have remained near four-month lows, with Brent crude trading around $65 per barrel on October 31.

The oil market showed indifference to the deterioration of communications with Russia and sanctions on its oil companies, as well as to the decline in U.S. inventories, the interest rate cut by the Federal Reserve (FED), and the announcement of an agreement between Trump and Xi Jinping. An attempted rally on the last Friday of October faded before markets closed.

However, the market will continue monitoring the behavior of all these variables heading into 2026, without forgetting the geopolitical variable.

GEOPOLITICS

President Trump's anticipated Asian tour was the most discussed news in the geopolitical sphere. His first stop was in Malaysia, where Thailand and Cambodia signed a joint declaration that Trump calls a peace agreement; both countries agreed on trade terms with the U.S. He also met with Brazilian President Lula da Silva to improve bilateral relations.

In Japan, Trump and newly appointed Prime Minister Sanae Takaichi have committed to elevating their trade alliance to a "new golden era," when Washington demands that Tokyo increase its defense spending in the face of China's growing threat. The regional perception of Japan's recent and unfortunate history as a military power forces it to tread that path cautiously.

In Korea, President Trump and Chinese President Xi Jinping had a meeting lasting just over an hour and a half, in which they reached agreements that ease their relations after months of turmoil over trade issues. The agreements focused on tariffs and fentanyl trafficking. The U.S. will immediately reduce tariffs on all Chinese goods that were previously applied in response to the flow of fentanyl precursor chemical ingredients that are ultimately trafficked to the northern giant. On the other hand, China will begin purchasing bulk soybeans and relaxing export restrictions on critical minerals and rare earths.

Russia-Ukraine

Putin describes the most recent U.S. sanctions as a "hostile act" and states that Russia will not yield in its strategy and will continue with its attacks on Ukraine.

Ukraine's Foreign Minister stated that in recent months, Russia has attacked Ukraine with a cruise missile whose secret development led Donald Trump to withdraw from a nuclear arms control pact with Moscow during his first term as U.S. President. This is the 9M729 missile, which flies 1,200 km before striking Ukraine. Russia has launched missiles at Ukraine 23 times since August, according to another senior Ukrainian official who spoke to Reuters.

Ukraine has urged Washington to provide it with long-range Tomahawk missiles, which the INF Treaty did not prohibit, since at that time they were only launched from the sea. The INF Treaty (Intermediate-Range Nuclear Forces) was an agreement between the United States and the Soviet Union, signed by then-U.S. President Ronald Reagan and the General Secretary of the Communist Party of the Soviet Union, Mikhail Gorbachev.

Russia already tested its nuclear-powered Burevestnik cruise missile last week, and on Wednesday announced the test of a nuclear-powered torpedo called Poseidon. In an apparent response, President Trump ordered the Department of War on Thursday to resume nuclear weapons testing, claiming that other countries' testing programs justified it. Energy Secretary Chris Wright clarified that these tests do not involve nuclear explosions.

The military confrontation on the ground focused on the eastern city of Pokrovsk. Both sides announce advances around and in the town. Ukraine deployed an elite contingent to reinforce its position in Pokrovsk; the operation demonstrates the strategic importance of the location following the incursion of Russian troops.

On the oil side, Indian refineries are temporarily suspending purchases of Russian oil in response to recent U.S. sanctions on Russian companies such as Rosneft and Lukoil. The current stance of refineries is one of caution, seeking clarity to ensure that purchases are not linked to sanctioned entities and awaiting the possibility of obtaining supplies from traders or non-sanctioned entities. Companies such as Reliance Industries and HPCL-Mittal Energy Ltd have canceled orders and seek alternative supplies, primarily from the Middle East and the Americas.

Middle East

The ceasefire agreed between Israel and Hamas has become intermittent, as each time Israel perceives that Hamas is breaching the agreement, it bombs the Gaza Strip, where its members gather, adding more fuel to the conflict.

Two more bodies of hostages were delivered. Nine remain to be delivered according to the agreement between the parties. However, Hamas has communicated that it has completed the delivery of all bodies of deceased hostages to which it has been able to access. No progress continues to be announced in planning the next steps beyond the cessation of hostilities and hostage exchanges.

U.S. Government Shutdown

In the past week, there has been a notable shift in the Senate, with legislators from both parties discussing how to end the government shutdown. But there is no widespread optimism, and neither party is ready to announce that a solution to the 31-day shutdown has been finalized.

Rank-and-file members, Republicans and Democrats, particularly those on the Senate Appropriations Committee, have intensified dialogue as the week has progressed. They are considering extending the continuing resolution passed by the House of Representatives to allow time to finalize appropriations bills, and Democratic senators are debating a package of funding bills among their own members. The threat that low-income populations will not receive food subsidies (SNAP) has materialized, generating greater political pressure.

A Geopolitical Sale

Lukoil, Russia's second-largest oil company, has agreed to sell its international business to the Swiss-based commodities trader Gunvor. This announcement came just after the U.S. imposed sanctions on major Russian oil companies, which would complicate transactions by their international subsidiaries and make it incredibly complex and almost impossible to operate. Gunvor is no stranger to Russia; its co-founder and former shareholder, Gennady Timchenko, is believed to be Putin's friend.

FUNDAMENTALS

Oil market fundamentals also had no visible effect on prices during the week, although the closely monitored weekly statistic, published by the Energy Information Administration (EIA), provided interesting information. Indeed, commercial crude inventories in the U.S. fell by 6.9 MMbbls, partly due to lower crude imports. Likewise, gasoline inventories fell by 6.7 MMbbls.

Crude production in the U.S. and Canada remains relatively constant, while natural gas production is increasing. This is consistent with rig activity, which, according to Baker Hughes, shows a contraction of 6 oil drilling rigs and an increase of 4 rigs dedicated to natural gas.

Interestingly, ExxonMobil and Chevron's third-quarter results show production increases from incremental development and efficiency, contradicting repeated predictions that shale oil production has already peaked. On the contrary, the unconventional hydrocarbon industry is comfortable with the current profit scheme that compensates investors and finances the production potential necessary to counteract decline.

The Energy Information Administration (EIA) projects that natural gas prices will increase due to rising demand in both domestic and export markets. For example, the average price is expected to increase from $3.20 per million British thermal units (MMBtu) in mid-2025 to $4.30/MMBtu in 2026. This increase is attributed to strong demand for liquefied natural gas (LNG) exports, which exceeds domestic production.

On the other hand, the FED's decision to reduce interest rates by 0.25% will tend to stimulate the economy and, therefore, energy demand. However, some analysts are concerned about Jerome Powell's announcement that he is not sure there will be other reductions before the end of the year.

At its November 2 meeting, OPEC+ agreed to an additional increase of 137 KBPD starting in December. Beyond December, due to seasonality, the eight countries in the group also decided to pause production increases in January, February, and March 2026. This news increases the market's uncertainty regarding OPEC+'s capabilities, which, in our opinion, has been left without spare capacity and, therefore, has lost part of its ability to control the oil market.

In China, private refineries (called "teapots") are operating at the highest levels of 2025, reinforcing demand, at least to the extent allowed by quotas set by the central government.

Price Dynamics

Crude oil futures fluctuated Thursday after the benchmarks received a mid-week boost thanks to inventory data. However, the market focused on trade talks between the United States and China and the upcoming OPEC+ meeting.

Prices remained immune to the week's numerous geopolitical and fundamental events. They are awaiting information on the repercussions of the recent trade truce between the United States and China and the governmental rapprochement between Donald Trump and Japan's new Prime Minister Sanae Takaichi.

As such, at market close on Friday, October 31, the benchmark crudes, Brent and WTI, were trading at $64.77/bbl and $60.98/bbl, respectively, a loss of 1.7% compared to the October 3 close.

VENEZUELA

You can judge a country by the company it keeps! 

In recent days, probably as a result of a combined strategy, Russia, China, Iran, and Cuba have condemned the military presence in the Caribbean. Colombia's President Gustavo Petro, who OFAC recently sanctioned, has also expressed his solidarity with Venezuela in its confrontation with the U.S., which analysts see as a tactical rapprochement with Nicolás Maduro.

Qatar, the Vatican, Dominica, Barbados, and even President Lula da Silva have also offered or called to mediate in the Venezuelan situation. However, Donald Trump maintains that his presence in the Caribbean concerns his country's security and the threat of narco-terrorism cartels and, therefore, mediation is not an option.

Therefore, Venezuela's situation remains complex militarily, politically, and economically due to a government that has a strong symbiosis with the military establishment. The government has consistently repressed dissent, and there is an economic crisis aggravated by very high inflation and dependence on oil trading at low prices. Military participation and deprofessionalization have disrupted institutions and the transparency of their operations.

The Miami Herald and the Wall Street Journal reported that their sources had confirmed that the U.S. was about to attack military targets involved in drug trafficking. The news, as expected, was denied by President Trump, who emphasized that if he had plans, he wouldn't make them public either. To date, the U.S. Department of Defense has announced the destruction of at least 14 vessels in the Caribbean and around 60 human casualties, presumably drug traffickers. Finally, it was confirmed that the U.S. aircraft carrier Gerald Ford is sailing toward the Caribbean.

In any event, in Venezuela, defensive preparations and political maneuvers aimed at discrediting those with different ways of thinking continued. The most recent tactic is to request that the Supreme Court of Justice (TSJ) revoke the Venezuelan citizenship of those whom the regime accuses of supporting an alleged military intervention in Venezuela, a process they are attempting to initiate against opposition leader Leopoldo López. The unofficial spokesperson for the revolution, Luis Ratti, asked that the names of María Corina Machado and Edmundo González be added to the TSJ process.

After the National Assembly (AN) declared Trinidad and Tobago's Prime Minister persona non grata, Maduro suspended all gas agreements between Venezuela and that island nation. The measure has little immediate effect on either side, since the suspended exploitation and commercialization plans are long-term.

Once again, the economic emphasis was on reducing the gap between the official and alternative foreign exchange markets, for which the official exchange rate has been allowed to slide, albeit at a less accelerated pace. Additionally, the amounts offered at that rate have been gradually reduced. The rest of the available foreign currency was delivered, via USDT, at values substantially higher than the official exchange rate, bringing the weighted rate to levels close to the alternative rate. As such, the gap was reduced to 36%. Tax collection also increased, primarily due to the indexation of collection elements, and liquidity was further restricted. This trend could prove challenging to maintain due to lower October exports and low oil prices.

Oil Operations

This week, electrical outages, oil spills, and floods have affected operations, although not materially.

Weekly crude production has shown a minor reduction, reaching eight hundred sixty-five thousand barrels per day (865 KBPD), geographically distributed as follows:

• West 228                  Chevron: 108

• East 118

• Orinoco Belt 519      Chevron: 125

• TOTAL 865             Chevron 233

National refineries processed 217 KBPD of crude and intermediate products, yielding 73 KBPD in gasoline and 75 KBPD in diesel.

In the petrochemical sector, one Metor methanol train is out of service; the other train and the Supermethanol plant are operating at 85% capacity. Fertinitro's ammonia and urea trains operate at controlled rates based on gas availability. SuperOctanos remains out of service.

Crude exports in October were substantially lower than the previous month; 531 KBPD was shipped from Venezuela. 410 KBPD was destined for the Far East (China), and 121 KBPD was shipped in 11 cargoes to refineries on the Gulf of America coast (formerly Gulf of Mexico). The exported grades were Merey 366 KBPD, Boscán 92 KBPD, and Hamaca 73 KBPD.

We estimate that the weighted price of exported crudes is $31.1/bbl. Revenues from crude exports in October are $64 MM less than in September.

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

THE RUSSIAN GAMBIT

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

The Trump administration's hope of achieving an expeditious resolution to the war that began with Russia's invasion of Ukraine suffered a not entirely unexpected setback. When it became evident that President Putin intended not to negotiate but rather to reiterate his position, just as he did in Alaska, Trump canceled the scheduled meeting between the two leaders in Budapest, Hungary.

Donald Trump had already threatened to impose additional sanctions on the Kremlin, although he thought it would not be necessary to go to that extreme; it turned out to be nothing more than wishful thinking, and he had to reconsider. Treasury Secretary Scott Bessent announced OFAC sanctions against Russian oil companies Rosneft and Lukoil, which, together with pressure on India and China, have significantly reduced Russian crude sales to those countries, despite the discounts. In parallel, the European Union (EU) approved a new package of sanctions against Russia.

All these decisions aim to weaken Russia's ability to finance its military capacity amid a Russian macroeconomy plagued by inflation and headed toward recession. The oil market reacted immediately with a price rebound that recovered the losses accumulated this month.

This severe market reaction has two interpretations: on one hand, the market estimates that the sanctions imply a potential collapse in Russian exports of between 1.0 and 2.0 million barrels per day (MMbpd); on the other hand, the much-touted oil overproduction now looks less likely than the pessimistic perception assumed. In any case, this extreme price volatility does the market no favors, although it does inject dynamism, especially in short-term speculative transactions.

GEOPOLITICS

In a one-hundred-eighty-degree turn from last week, geopolitical risk returned to center stage, causing a reversal in market sentiment. This time, it concerns how rigid the Kremlin occupant's war strategy appears to be: victory at any cost.

Russia-Ukraine

Donald Trump's insistence on pressing for a solution and Vladimir Putin's intransigence in his position are generating significant effects in the global oil market. Economic sanctions, pressure on buyers, and supply disruptions raise risk perception. A short list of the West's reaction to the deafness is as follows:

·       The U.S. announced sanctions against Russia's two largest oil and gas companies, Rosneft and Lukoil.

·       Trump threatened to impose secondary tariffs on countries that continue to buy Russian oil if Russia does not cooperate with peace agreements.

·       Pressure measures against India and China apparently took effect, and both are willing to reduce purchases of Russian crude.

·       The EU approved a new package of sanctions against Russia, No. 19, which will introduce new measures on oil and gas, the shadow fleet, and the Russian financial sector, in addition to personal sanctions against Russian officials.

·       For his part, Putin has adopted a defiant stance, refusing to yield to external pressures and warning that a reduction in Russian oil supply could trigger crude oil prices, as occurred this week.

·       On the negotiation with Zelensky, the EU decided to supply Ukraine with long-range missiles manufactured by Germany. The U.S. is reconsidering providing and allowing the use of Tomahawk missiles, which would put Russia's hydrocarbon infrastructure in check.

·       Russia, to demonstrate that it also has cards, announced the successful test of a new nuclear-powered cruise missile called Burevestnik. It is designed to evade missile defenses and supposedly has unlimited range.

Control of the Donbas region remains a strategic priority for the Kremlin. Apparently, Putin's positioning is designed to buy time and achieve military control of this region, which is part of what Putin calls "Novorossiya" or New Russia. This concept dates back to the 18th century during imperial expansion toward the Black Sea and the Balkans.

The Donbas is the industrial heart of Ukraine, with an area of about 52,000 km². It is rich in coal mines, steel mills, metallurgical plants, and strategic ports, including Mariupol, on the coast of the Sea of Azov. During the Soviet era, it was considered the economic engine of industrialization, essential for the development of the USSR. Still, in recent times, leading to the collapse in 1991, the region fell into economic and demographic decline, marked by disinvestment and the obsolescence of its infrastructure.

For Russia, the Ukrainian situation comes down to a balance between the pain caused by sanctions, the loss of lives and equipment in trench warfare and bombardments, and the importance of the Donbas region for Putin and for the post-war period of the area.

From an oil perspective, the fall in Russian exports could be between a maximum of 3.0 MMbpd and a more likely level of 1.0 MMbpd, which implies a drop in monthly revenues of 2,000 to 4,400 million dollars, a not insignificant amount in lean times. It has been reported that Chinese state-owned companies have already begun canceling Russian crude purchases.

Middle East

Between Israel and Hamas, a fragile truce is maintained, which has been announced will be guarded by a multinational force. However, not much progress has been made after taking the first step of the "Trump deal." The return of the remains of hostages who lost their lives in captivity has been like a slow drip; by the end of the week, only 15 of the 28 bodies have reached Israel. Trump's visit to Israel was followed by visits from Vice President J.D. Vance and U.S. Secretary of State Marco Rubio, designed to reinforce the White House's commitment to the fragile peace agreement.

Rubio, on his visit to Israel, declared that Hamas "cannot participate in the government of Gaza in the future." Rubio also stated that the UN agency for Palestinian refugees (UNRWA) "cannot play any role in Gaza" and described it as a "subsidiary of Hamas." In Rubio's opinion, Israel should be comfortable with international contributions to a future security force in Gaza, following reports that Prime Minister Benjamin Netanyahu opposed Turkish participation.

Rubio added that more countries are willing to normalize relations with Israel, but the decision would depend on a broader and sustained regional peace agreement. This would encourage more countries to join the Abraham Accords, just as the United Arab Emirates, Bahrain, and Morocco did, which normalized their relations with Israel in 2020.

Netanyahu ordered a halt to the advancement of bills in the Israeli Parliament related to the annexation of the West Bank after U.S. Vice President J.D. Vance expressed his disagreement with the voting on two proposals in the Knesset. The bills seek to apply Israeli legislation in the occupied West Bank, which would imply the annexation of territories claimed by Palestinians to establish a State, without considering the preliminary approval of the plan previously proposed by Trump by the Knesset.

In Egypt, delegations from Hamas and Fatah met to discuss agreements on the post-conflict period in Gaza, according to a report Thursday by the newspaper Al-Qahera News, an Egyptian state-linked media outlet. According to the 20-point plan proposed by Trump, an international security force made up of Arab and Muslim allies would manage the transition in Gaza during the progressive withdrawal of Israeli troops.

In southern Lebanon, Hezbollah terrorists are attempting to regroup, but Israeli forces are bombing them.

U.S.-China Trade

At the end of October 2025, trade negotiations between the United States and China are at a critical juncture, marked by fruitless talks and an escalation of tensions. A meeting between U.S. President Donald Trump and Chinese President Xi Jinping is scheduled for October 30 in South Korea, generating hope and great uncertainty.

Senior economic officials from both countries met in Kuala Lumpur on October 25 to reduce tension before the leaders' summit. A U.S. Treasury spokesperson described these talks as "very constructive" and stated they would continue. Much is at stake, as President Trump has threatened to impose 100% tariffs on Chinese imports starting on November 1 if an agreement is not reached.

In general, Donald Trump continued with active diplomacy, maintaining various confrontations in parallel: Venezuela, Mexico, and Colombia over narcoterrorism (President Petro was subject to OFAC sanctions). He also suspended trade negotiations with Canada for what he considered propaganda manipulated by the government of the province of Ottawa. Trump accused China of using Venezuela as a bridge for fentanyl trafficking.

In Argentina, the unexpected electoral victory of parties aligned with President Milei changed the board, providing critical support for the changes advocated by the occupant of the Casa Rosada. This will be well received by companies promoting the development of the Vaca Muerta basin.

U.S. Government Shutdown

The U.S. government remains partially closed. Monday's vote in the Senate did not reach the necessary support of 60 votes, as Democrats rejected the short-term funding measure approved by the Republican majority in the House of Representatives. That was a short-term measure to extend the "wrinkle" until November 21; hence its name: "continuing resolution."

No tangible signs of negotiation have emerged between congressional leaders since President Donald Trump met with them last week. The White House said Trump had spoken with Republican leaders, but not with the leading congressional Democrats. "His position is apparent," he said. "There is nothing to negotiate."

FUNDAMENTALS

Oil fundamentals took a back seat this week as geopolitics captured the market's attention.

In the U.S., as is now customary, there were no surprises. The Energy Information Administration (EIA), in its weekly report, maintains the production level at around 13.5 million barrels per day (13.5 MMbpd) and commercial crude inventories falling by a modest 1.0 million barrels (1.0 MMbbls). However, that volume becomes more significant considering there are about 4 MMbbls of additional imported crude and 1.5 MMbbls less refining than the previous week.

Baker Hughes reports an increase of 2 rigs activated during the week; the balance of 2 rigs that stopped operating in unconventional basins in Texas and four rigs activated in deep waters, which points to what was mentioned regarding the greater relevance of activity in those basins.

Although without a short-term effect, limitations on drilling offshore in Alaska were removed, and it is expected that, with this new regulation, the decline in production in the state will be mitigated or reversed.

In neighboring Canada, oil activity is on a plateau of caution. Drilling continues to be limited, as producers exercise caution with their capital spending programs due to downward pressure on crude prices. A 30% increase in Canadian oil exports to China provided a positive note; Canada and Venezuela appear to be replacing Russian crude in the Chinese market.

OPEC+ has been closing the gap between crude opening announcements and actual production; at the close of September, the cartel had increased its output by about 500,000 barrels per day (500 Mbpd), still 600 Mbpd below the total announced since April. As the geopolitics section explains, Russia's problems exporting crude will affect the gap.

Price Behavior

The pessimism generated by announcements of an oversupplied market and predictions of unusually low demand increases was silenced by a sudden rise in geopolitical risk threatening Russian exports.

Geopolitical risk has pushed into the background news about record volumes of crude on the water, the flattening of backwardation curves, and China's weakening of strategic reserve purchases.

At the close of markets on Friday, October 24, the benchmark crudes, Brent and WTI, were trading at $65.94/bbl and $61.50/bbl, respectively—a week-over-week gain of around 7%.

VENEZUELA

Rising Uncertainty

Venezuela faces a crisis characterized by multiple variables. Political instability, external threats linked to narcoterrorism, high country risk, and economic recession interact and aggravate the national situation. Added to this are the humanitarian emergency affecting millions of people, the increase in political repression, the renewal of international sanctions, and the economic deterioration that nullifies any previous progress; all these factors configure a complex and challenging scenario for the country.

The presence of the U.S. naval force, stationed in the southern Caribbean Sea and, recently, in Trinidad, has so far resulted in the elimination of 9 boats and one submersible unit, allegedly in service for drug trafficking; about thirty deaths are reported. One of the two survivors of these attacks, a native of Ecuador, turned out to be a criminal convicted in the U.S. and deported to his country of origin, where he was released for lack of evidence.

According to statements by the U.S. president, the second phase of the operation consists of reducing narcoterrorist activities on land, which implies a potential increase in pressure on the Venezuelan regime. The deployed force is also increasing by incorporating the destroyer USS Gravely, which arrived in Trinidad. There is speculation that the aircraft carrier Gerald Ford is sailing toward the Caribbean.

On the Venezuelan side, Maduro and his administration focused on presenting themselves as a power in defensive armament. They spoke of more than 5,000 anti-aircraft missiles of Russian origin deployed in the national territory and of militia training. In the diplomatic sphere, he made efforts to obtain sympathy and close ranks with leftist governments and his traditional allies, Iran, Russia, and China.

There was also friction between the authorities and the Catholic Church. Without presenting evidence, Maduro accused Cardinal Baltazar Porras of attempting to obstruct the canonization of Dr. José Gregorio Hernández before the Vatican and claimed credit for having personally promoted the canonization process of the new Venezuelan saint. This was a response to the messages of Cardinal Porras, which replicate the message of the Vatican Secretary of State, Cardinal Pietro Parolin, who presided over a thanksgiving mass for the canonization of the first two Venezuelan saints and denounced the existence of "unjust imprisonments" and "oppression" in the country.

The economy continues to be the weakest link due to the need for foreign currency, which is not obtained through the sale of hydrocarbons. The continued shortage of foreign currency has generated the need for monetary financing, which has translated into an increase in the gap between the official and parallel exchange markets. So, the financial authorities have dedicated themselves completely and with some success to reducing that gap.

Thus, public spending was reduced, tax collection increased, and, perhaps most relevant, the bolivar's devaluation rate was accelerated. The injection of foreign currency at the official exchange rate was considerably reduced. Meanwhile, via cryptocurrencies, mainly USDT, it increased to values well above the official rate.

All these measures managed to reduce the gap between both markets, going from a maximum of 65% to half (32%), with a downward trend. However, this is not extrapolable because some adjustment sources have already been used, and October revenues will likely be lower than September's.

Oil Operations

Activities in the hydrocarbon field designed to generate greater production through mixed companies (EM) and participation contracts (CPP) are ineffective due to adverse investment conditions, either for legal or ethical reasons or due to pressure from U.S. sanctions. Under these limitations, it is impossible to structure a sustained recovery of the national oil business.

Having said this, production has shown a modest increase to 870 Mbpd, distributed geographically as follows:

•          West                225       Chevron:          109

•          East                  119

•          Orinoco Belt     519      Chevron:          124

•          TOTAL              863      Chevron           233

The increase in production in the West comes from the mixed company PetroZamora. The PetroPiar upgrader produced 91 Mbpd of Hamaca crude.

National refineries processed 220 Mbpd of crude and intermediate products, yielding 73 Mbpd in gasoline and 77 Mbpd in diesel.

In the petrochemical sector, no changes have been reported since last week.

So far this month, in 24 days, about 20 million barrels of crude oil have been dispatched or loaded, equivalent to 650 Mbpd. The most significant part (480 Mbpd) is destined for the Far East (China), 135 Mbpd to the U.S., and 35 Mbpd to Cuba.

The exported segregations were: 410 Mbpd of Merey, 80 Mbpd of Hamaca, and 60 Mbpd of Boscán.

We estimate that the weighted price of exported crudes is $31.4/bbl.

[1]: International Analyst

[2]: Nonresident Fellow Baker Institute

 

OIL PRICES COLLAPSE AS GEOPOLITICAL RISKS DILUTE

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

The fragile implementation of the ceasefire and the beginning of the hostage exchange between Israel and Hamas, coupled with the promise of a summit between Presidents Trump and Putin in Budapest, which fuels hopes that it will lead to an outcome similar to that of Gaza's in Ukraine, have reduced the perception of geopolitical risk to a minimum.

The reimposition of tariffs by the United States on imports from China has reignited concerns about the strength of the economy and, consequently, oil demand. If we add to this the forecasts of a significant expansion in supply—in line with projections made by the International Energy Agency (IEA)—the perception has begun to consolidate in the markets that they are going through a period of economic slowdown accompanied by abundant oil supply.

The recent report of increased crude oil inventories in the United States has only added to this pessimism, which was reflected in a new decline in oil prices, reaching their lowest levels since the 2020 pandemic.

On the other hand, the potential effect on demand of the stimulus measures that central banks are reconsidering has an impact that is difficult to estimate. If we add to this the difficulties in determining the real capacities of producing countries, particularly the estimation of field declines, a better scenario than what is currently perceived as the base case could well occur.

In any case, we believe that current productions do not support the announced supply levels despite OPEC+'s month-over-month increase in September of approximately five hundred thousand barrels per day (500 kbpd) since production increases from the U.S., Canada, and Brazil could be overestimated.

GEOPOLITICS

Russia-Ukraine

The oil market has interpreted the upcoming meeting between Presidents Trump and Putin in Budapest as a possible starting point for resolving the conflict in Ukraine. The financial pressures from economic sanctions that significantly limit Russia's ability to continue the war continue to increase, making some type of compromise more likely. However, in Russia and Ukraine, the expectation prevails that this meeting will not generate substantial progress. It should be noted that Budapest was chosen as the venue because Hungary is not part of the International Court of Justice, which exempts Putin from concerns regarding possible arrest for charges filed at The Hague.

During a meeting at the White House between Donald Trump and Volodymyr Zelensky, no agreement was reached for the supply of Tomahawk missiles; this decision seeks to preserve these missiles as a negotiating tool in relations with Russia. On the other hand, NATO defense ministers are scheduled to meet on Wednesday to strengthen military support for Ukraine, in response to the significant decline in shipments of weapons and ammunition to that country.

The ministers will also debate a request from the NATO commander to lift restrictions on using their aircraft and other military equipment so they can be used to defend the alliance's eastern border with Russia, Belarus, and Ukraine more effectively.

The British government has included Russia's two main oil companies, Rosneft and Lukoil, in its latest sanctions package, as well as 44 tanker vessels identified as part of the "shadow fleet"; it has also added to the sanctions the Nayara refinery in India, which is majority controlled by Russian capital. However, these measures did not generate a market response.

Simultaneously, President Trump stated that India's Prime Minister, Narendra Modi, agreed to cease purchasing Russian oil. This is part of U.S. efforts to exert economic pressure on Russia and force it to negotiate an end to the conflict in Ukraine.

Middle East

Following the start of the ceasefire between Israel and Hamas, the exchange of hostages was carried out without incident. This was not the case with the bodies of hostages who died in captivity: of the 28 that had been agreed upon, as of October 19, only 9 had been returned. According to Hamas, they had problems recovering the rest of the bodies from the rubble in the strip and were receiving help from other countries to locate them.

Apparently, Hamas intends to maintain security control in Gaza. A senior Hamas official indicated that he could not commit to the group's disarmament. Mohamed Nazzal, a member of Hamas's politburo, also said the group was ready for a ceasefire of up to five years to rebuild devastated Gaza and would provide guarantees for what happens afterward based on Palestinians being given "horizons and hope" of obtaining their own state. Nazzal, from Doha, defended the repression the group is carrying out in Gaza, where it conducted public executions on Monday. "Exceptional measures are always applied during war, and those executed are criminals guilty of homicide," he stated.

While Hamas has expressed these opinions before, they are evidence of the main obstacles obstructing efforts to consolidate a complete end to the war in Gaza. The ceasefire negotiated by the United States in Gaza appears to have survived its first major test this weekend, as Israel and Hamas affirmed their commitment to the agreement after two Israeli soldiers were killed in the enclave on Sunday, triggering waves of airstrikes.

While the ceasefire has held, the other fronts, such as Hezbollah and the Houthis, have not changed their stance toward Israel, and several bombings, mainly in southern Lebanon, have been carried out by Israeli forces in retaliation or prevention.

Iran

For unknown reasons, Iranian-flagged tankers have activated their automatic identification systems (AIS), which had been deactivated since the U.S. imposed sanctions on Iranian oil exports in 2018. That decision sought to hide the traffic of tankers that violated sanctions, including frequent ship-to-ship transfers. Groups monitoring tanker movements reported that more than 80% of Iranian vessels have transmitted location signals.

The measure seems counterintuitive, given that sanctions have intensified. The possibility is raised that these actions seek to reaffirm legitimacy and sovereignty; however, considering Iran's current situation, it is more plausible that they respond to warnings issued by the United States. According to these warnings, sailing without activated transponders violates regulations established by the International Maritime Organization, which constitutes a legitimate cause to prohibit the circulation of any vessel on the high seas. The measure could have also responded to demands from China, which imports 90% of Iran's oil exports.

Transporting Iranian crude directly to China again would represent substantial savings for Iran, provided China continues accepting the shipments. In any case, shortly afterward, the tankers deactivated their signals again.

U.S.-China Trade

China and the United States reported on Saturday, October 18, that they will hold another round of trade negotiations next week to avoid imposing new tariffs. Last week, Beijing implemented new restrictions on the export of rare earths, which led the U.S. president to raise the option of establishing 100% tariffs on imports from China. Additionally, the possibility of canceling the meeting between the U.S. president and Chinese President Xi Jinping in South Korea during the Asia-Pacific Economic Cooperation (APEC) summit was mentioned.

Chinese state media reported that Vice Premier He Lifeng and U.S. Treasury Secretary Scott Bessent held "frank, in-depth and constructive exchanges" during a call on Saturday morning and that both parties agreed to hold a new round of trade talks "as soon as possible."

U.S. Government Shutdown

The federal government shutdown extended into its third week on Wednesday, after lawmakers failed to advance in negotiations.

The ninth failed Senate vote occurred when the parties met separately at the Capitol to accuse each other of being inflexible. Meanwhile, military families and federal workers generally face the prospect of having their paychecks interrupted by the end of the month. A new attempt is scheduled for the afternoon of Monday, October 20, but without much hope of finding a compromise.

FUNDAMENTALS

An unusual convergence is observed between physical factors, such as increased production by OPEC+ countries and the rise in crude oil inventories in the United States. Forecasts anticipate weak demand and high supply, generating a dual pessimistic sentiment in market perception.

Our analysis indicates that during September, OPEC+ cartel members increased their production by approximately 500,000 kbpd compared to August. This increase places the total voluntary opening of shut-in crude, since April of this year, at 1.7 MMbpd, compared to the 2.2 MMbpd announced by the group. It should be noted that the primary source of this data is OPEC itself and its secondary sources, except for Russia, whose values we have adjusted according to additional specific observations.

According to the weekly report from the Energy Information Administration (EIA), commercial crude oil inventories increased by 3.5 MMbbls but remained 4% below the five-year average range. Meanwhile, gasoline and distillate inventories decreased by 4.8 MMbbls.

Regarding the supply increase forecast by the International Energy Agency (IEA) and retransmitted by other sources, chronological analysis of information from original sources leads us to conclude that they overestimate the production increase. For the remainder of 2025, we believe there will only be increases in crude production from Guyana, 80 kbpd; Brazil, 25 kbpd; and Argentina, 18 kbpd, a total non-OPEC+ increase of 123 kbpd. During 2026, we anticipate an increase in global production of 1.5 MMbpd.

The IEA suggests more than 2.0 MMbpd increases in 2025 and 2026, reaching production of 108.3 MMbpd, which exceeds our calculations by more than 2.0 MMbpd. The most likely explanation is that the IEA has an agenda to discourage investment in fossil fuels, as its pronouncements often affect the management decisions of small and medium-sized oil companies and financial entities. This would be a curious agenda, to say the least, since the IEA has also spoken about the need to increase investment to avoid a supply crisis.

OPEC and its allies are naturally on the other side of the argument. According to Amin Nasser, CEO of the Saudi state oil giant Aramco, the oil industry must intensify exploration and investment in new supplies; otherwise, the world risks suffering a supply shortage. "If that doesn't happen, there will be a supply crisis," Nasser told the Financial Times.

Saudi oil company Aramco and OPEC have warned for years that the reduction in oil exploration, driven by recent net-zero emissions policies, would harm consumers and world economies with an insufficient oil supply. We estimate that an investment of $800 billion annually is required to avoid an energy crisis over the next 25 years.

Returning to the present, U.S. oil companies plan to maintain a balance between their investments and remuneration of their investors, so that potential-generating activities remain relatively constant in shale basins and there is a slight uptick in offshore developments.

Guyana is increasing production at its fourth floating production, storage, and offloading (FPSO) facility, Guyana 1, from about 112 kbpd today to 250 kbpd in April 2026. The next FPSO will arrive in Guyana at the end of the year, but the production increase will be perceived in 2027.

In Brazil, production recently began from the FPSO installed in the Bacalhau field in the Brazilian Pre-salt: the most significant offshore project operated by Norway's Equinor and its partners ExxonMobil, PetroGal, and the Brazilian company PPSA. Peak production will not be reached until 2027. Another unit, FPSO P-78, which recently arrived at the Búzios field, is estimated to be commissioned and begin production in 2026. Argentina, for its part, plans to increase output in Vaca Muerta by about 60 kbpd during 2026.

Price Behavior

The almost complete alignment of geopolitical factors, fundamentals, and forecasts of demand and supply behavior caused the market to enter panic mode, and prices fell to their lowest levels in five years and almost 20% lower than at the beginning of the year. All this in a scenario full of short—and medium-term uncertainties.

Thus, at the close of markets on Friday, October 17, the benchmark crudes, Brent and WTI, were trading at $61.29/bbl and $57.54/bbl, respectively, a loss of almost 2% compared to the previous week's close.

VENEZUELA

"The pitcher goes so often to the well that it breaks."

In the last week, Venezuela's political situation has once again revolved around diplomatic tensions with the U.S. and the regime's internal actions to convey security to its allies and fear to its opponents. Meanwhile, in the economic sphere, the substantial currency devaluation stands out.

Nicolás Maduro, alluding to President Trump's recent declaration that CIA actions should be carried out in Venezuela against drug cartels, resorted to the well-worn 20th-century playbook of the northern enemy's "coups d'état" to promote regional solidarity. It is sometimes difficult to understand whether or not there is a coherent strategy or if both sides are just reacting to events. Do financial markets seem to bet on political change, allowing them to negotiate and recover part of the state's enormous debt?

Two days after the CIA announcement, Trump confirmed the attack on a kind of submersible vessel loaded with drugs north of Venezuela, this time with a couple of survivors who were recovered by American helicopters and repatriated to Colombia and Ecuador, their alleged countries of origin. Another surprising news, which appeared in newspapers but was later confirmed by Trump, was that Nicolás Maduro had offered the U.S. preferential access to oil and other resources in exchange for a regime survival agreement. Curiously, the regime has accused the opposition, particularly María Corina Machado, of making the same offers.

On the economic side, the availability of foreign currency has not improved. On the contrary, lower prices for oil exports are hurting that front. The foreign currency deficit generates monetary financing to cover public spending needs, but the bolívars thus generated end up putting pressure on the foreign exchange market, forcing the devaluation of the bolívar and the consequent increase in inflation.

Venezuela's official exchange rate rose 451.8% in one year, a severe depreciation of the bolívar. The shortage of foreign currency has triggered the gap between the official exchange rate and parallel markets, which has only been mitigated by restricting the dollars injected into the market at the official rate and offering the remainder at higher prices using dollar-linked cryptocurrencies, USDT, and others, creating a parallel exchange market controlled by the ruling party. This allows certain companies and officials to obtain foreign currency at a price higher than the official rate.

Naturally, this process has intensified the country's transactional dollarization, particularly in purchasing basic basket products. The Venezuelan Finance Observatory (OVF), a prestigious private reference, has reported significant economic contractions, suggesting an ongoing recession.

Oil Operations

Operations in the hydrocarbon sector have continued their normal course. It is reported that in northern Monagas, approximately 300 million cubic feet per day (300 MMcfd) of natural gas is being collected and injected into the reservoirs, thus reducing the volume of gas flared and vented to below 1,500 MMcfd.

Crude oil production during the last week averaged 863 thousand barrels per day (863 kbpd), distributed geographically as follows:

•        West                    225    Chevron:     109

•        East                     119

•        Orinoco Belt         519    Chevron:     124

•        TOTAL               863    Chevron     233

National refineries processed 230 kbpd of crude and intermediate products, with yields in terms of gasoline of 76 kbpd and diesel of 78 kbpd.

A spill was reported on the western coast of the Paraguaná peninsula, coming from the Cardón refinery, affecting the activities of fishing communities.

In the petrochemical sector, Fertinitro's production train No. 1 was started up, while No. 2 continues in maintenance. In the methanol plants, one of Metor's plants is paralyzed due to a lack of natural gas, while the other two are operating normally. The SuperOctanos plant remains paralyzed.

Mid-week, crude oil exports exceeded 10 MMbbls, again destined for China and the U.S. Six shipments, a total of 2.0 MMbbls, were sent to refineries on the Gulf Coast of America.

We estimate that the weighted price of exported crude is $29.8/bbl.

[1]: International Analyst

[2]: Nonresident Fellow Baker Institute