Tuesday, June 24, 2025

TRUMP SEEKS TO SHORTEN TIMEFRAMES IN THE IRAN-ISRAEL CONFLICT



 

The development and outcome of the open military confrontation between Israel and Iran, inherently difficult to predict, takes a new path now that the White House has decided to intervene militarily in Iranian territory, under the argument that it seeks to accelerate a negotiated peace. In a region that concentrates a high proportion of the world's hydrocarbon industry, the surprising but not unexpected Israeli air attack and Iranian response are not minor events and raise the risk that an "accident" could trigger escalation in a traditionally volatile region. The world's most important oil facilities are directly or indirectly exposed to being affected by the conflict, which can shake the global energy market.

US Military Intervention

During the week, President Trump threatened the regime of Ayatollah Ali Khamenei with reprisals if it did not agree to his demands to negotiate a nuclear agreement. The threats were accompanied by granting a two-week deadline for Iran to abandon its uranium enrichment program, raising doubts about the real intentions of the US.

In what is already almost a standard tactic of the White House occupant, Trump ignored the deadline he established and surprised with military intervention in the conflict. On Saturday, the US Air Force attacked three targets of Iranian nuclear infrastructure: Fordow, Natanz, and Isfahan, with the declared objective of forcing negotiation and, it is speculated, a change in the Iranian regime.

Impact on Oil Markets

All these variables have elevated the price and volatility of oil to their highest levels since the beginning of the year, and the effect of the US incursion is already beginning to materialize in crude oil prices at the start of the new week, faced with threats, this time, from the Iranians.

All other factors that typically move market actors have been relegated to second place this week. Chinese demand, the reduced effect of OPEC+ production increases, falling crude oil inventories in the US, and Federal Reserve decisions became merely sterile statistics for oil market purposes. Oil analysts transform, at least for now, into military observers.

Geopolitics

Impact on Oil Infrastructure

From the perspective of global hydrocarbon production and supply, the war between Israel and Iran, contrary to past Middle East conflicts, has not had serious repercussions so far. Destruction in oil infrastructure, due to missile exchanges and air bombardments, is limited to damage to facilities at a refinery associated with the South Pars gas and condensate field in Iran, and to an Israeli refinery in Haifa. Even the Tamar gas field, in Israeli territorial waters, has been reopened to supply natural gas to Egypt. Nevertheless, the situation has increased tanker freight prices, affecting economies globally.

Pressure on Maritime Routes

The US has pressured Yemen's Houthis with commercial sanctions and bombardments of their missile launch facilities, to maintain free passage through the Bab el-Mandeb strait and as a precaution against any potential closure or limitation of passage through the Strait of Hormuz; a possible, though currently improbable, reaction to the US incorporation into the conflict.

Damage to the Iranian Nuclear Program

The war enters its second week, and damage to Iran's nuclear program is significant. Still, its capacity to reestablish its nuclear aspirations, which would be naive to think they will abandon, is unknown. Much of the military command appears to have been eliminated, and as part of the attacks on Natanz and Fordow near Qom, much of the key scientific personnel of the nuclear program as well. Ayatollah Ali Khamenei is under protection and supposedly has named his successor in case he is assassinated.

Fordow Operation

A key element in the US operation was the destruction or disabling of facilities at Fordow, located near the city of Qom, equipped with five tunnels and hidden inside a mountain 60 meters deep, and which, according to the Israeli government, stores the enriched uranium necessary to manufacture nuclear weapons. The US used in its Saturday attack its "Massive Ordnance Penetrator" (MOP GBU-57), a projectile capable of drilling through mountains and penetrating more than 60 meters before exploding. This weapon presumably would allow destroying those underground facilities, though beyond White House announcements, the extent of damage caused remains to be confirmed.

Damage in Israel

In Israel, despite more than 90% of missiles and drones launched by Iran having been destroyed, some caused significant damage, as is the case with the Weizmann Institute. Although no one died in the attack, several campus laboratories were destroyed, ending years of scientific research. At the same time, Israeli scientists were reminded that they are also in the crosshairs of the conflict.

Diplomatic Situation

There has been no progress on the diplomatic front. The summit held in Geneva with Iran's foreign minister and European leaders yielded no signs of advancement, and the UN Security Council meeting ended with Iran and Israel exchanging insults and without any conclusion.

Subsequently, President Trump dismissed the European initiative, suggesting that a diplomatic solution would require US intervention. That was when he opened the two-week deadline for negotiations with Iran, which was later bypassed. Markets now anxiously await Iran's response to the US attack.

Russia-Ukraine Conflict

On the Russia/Ukraine front, after concluding an exchange of bodies of soldiers fallen in combat, the parties continued exchanging drone attacks, with Russia taking advantage of summer and the presence of additional troops from North Korea. Russia expects an agreement on the date of the subsequent peace talks with Ukraine next week. However, it wouldn't be strange if Putin uses the US attack on Iran as a strategic piece.

European powers continue to consider Russia a potential enemy and are about to impose new incremental sanctions, starting with the prohibition of reactivating the "Nord Stream" gas pipelines. Putin seems more interested in intervening as a mediator to defend his Iranian partner than resolving his own war. He probably considers that after the fall of his partner in Syria, the loss of Iran would be a hard blow.

Regional Geopolitical Strategy

Some geopolitical strategists suggest that the underlying objective of US policy is to pacify the Middle East, establish the "economic corridor" India—Middle East—Europe, a supply chain with enormous potential, and constitute a strategic response to China's initiative called "Belt & Road."

Fundamentals

Federal Reserve Monetary Policy

Despite being overshadowed this week, oil market fundamentals generally showed positive readings regarding market health.

The Federal Reserve (FED) decided not to move interest rates in the US, although the White House has expressed interest in a reduction, which would have provided relief in debt service. The FED pays more attention to the future of inflation due to energy price increases than employment figures and generally lower economic growth in America.

Oil Financial Discipline

Despite the increase in oil prices, US oil companies maintain their financial discipline policy for eminently geopolitical reasons. Operational activity remains stagnant in terms of production. They continue to reduce activities to generate new production potential.

Crude Oil Inventories

The Energy Information Administration (EIA) published its weekly statistics, revealing an unusual fall in commercial crude inventories (-11.4 million barrels). An abnormally large drop that will need to be analyzed later, based on indicative trends over several weeks.

OPEC Production

Another relevant element for supply levels experienced in recent weeks is the increase in OPEC+ crude oil production, in compliance with their announcements. Considering announcements for April, May, June, and July (see attached chart), compliance looks meager, especially if we take into account that Kazakhstan has maintained its overproduction essentially constant.


European Energy Policies

In Europe, while Norway is deploying a high level of oil activity, including exploratory, the United Kingdom government has issued a new set of strict environmental standards for new fossil fuel projects. The standards require that so-called Scope 3 emissions (those produced in the use of extracted fuels) be included in the environmental impact assessment of any project. This is an example of ideology imposing itself on the reality of energy supply.

Asian Demand

On the demand side, June is shaping up as crude oil purchases near May levels for both China and India, representing a recovery compared to the beginning of the year.

Price Dynamics

Crude oil prices moved to the rhythm of the risk of interruption in the hydrocarbon value chain, in a wide range, between $70 and $79/BBL. At the end of the week, a modestly bearish trend was experienced after the announcement that Trump would delay the deadline for possible US participation in the conflict. In any case, prices closed the week with a gain of more than 3% compared to the previous week, placing themselves at February 2025 levels. Thus, at market close on Friday, June 20, the Brent and WTI benchmark crudes were trading at $77.01/bbl and $73.84/bbl, respectively.

At the close of this note, and after the US attack on Iranian nuclear facilities, prices seem to be awaiting a possible Iranian reaction, and with a slight downward trend. And in an attention-grabbing statement, President Trump "ordered" oil companies to keep prices low.

VENEZUELA

A Confidential Economy

It is said that having access to foreign currency is the most challenging thing in Venezuela. However, obtaining official statistics is even more difficult because they are not published. Unofficial figures, the result of private research, have also disappeared amid the regime's repressive wave against analysts and economists; the regime seems to have decided to ban thermometers to avoid recognizing the fever.

Economic Indicators

Economically, we know, through the Central Bank of Venezuela (BCV), that the official exchange rate is close to 105 Bs./$, a depreciation of more than 50% compared to the beginning of this year. The parallel market rate has disappeared from public spaces, although foreign portals estimate it at 142 Bs/$. The inflation rate is not published either, but the equation: foreign currency shortage + monetary financing + Bolivar depreciation, can only result in growing inflation and negative economic growth.

Benefits of Oil Prices

The only aspect that has given a slight respite to the economy is oil prices, which have increased for geopolitical reasons. In June, the weighted prices of Venezuelan exports rose to almost $33/BBL. According to our calculations, for each dollar increase in the Brent benchmark crude price, Venezuela should receive, assuming total transparency in collection, an additional $0.5/BBL. In other words, Brent rising from $70 to $77/BBL would result in an extra $3.5/BBL, around $70 million monthly.

Anti-Sanctions Model

By June, the "Anti-Sanctions Model" is in operation. It is based on:

  • Maintaining exports near the same pre-June level.
  • Reduction of public spending to limit monetary financing.
  • Foreign currency for delivery destined for "first necessity" activities.
  • Structuring an alternate collection system, with emphasis on barter and cryptocurrency.

With this defensive strategy, Nicolás Maduro, Delcy Rodríguez, and the BCV hope that economic stagnation does not become chronic.

International Political Position

Politically, after Israel attacked Iran, Nicolás Maduro ratified his support and solidarity with Iran. In a televised act, he said: "We firmly ratify our absolute solidarity with the people of the Islamic Republic of Iran, with the Palestinian people, with the Syrian people, with the Lebanese people, with the Yemeni people and with all Muslim peoples and Arab peoples."

Oil Operations

Production Scheme

In this first month of the new scheme, which we call the "Anti-Sanctions Model," PDVSA focused on producing through joint ventures (JV) and production participation contracts (PPC) with private companies willing to maintain activities without OFAC authorization from the US. Exports concentrated on sending crude and products to China through mechanisms we have already analyzed in previous writings.

Crude Oil Production

Crude oil production during the last week averaged eight hundred forty-seven thousand barrels per day (847 Mbpd), distributed geographically as follows, in MBPD:

Area

Mbpd

West

213

East

121

Orinoco Belt

513

TOTAL

847

National Refining

National refineries processed 216 MBPD of crude and intermediate products, yielding 80 MBPD in gasoline and 71 MBPD in diesel.

Exports

June export figures point to a monthly average of about 570 Mbpd. Seven tankers were dispatched in the first 20 days, and at least five more are expected before the end of the month. All shipments are destined for the Far East except one for Cuba.

Petrochemical Sector

Methanol plants in the petrochemical sector operate at almost 86% of their capacity. At Fertinitro, one ammonia and urea train operates, and Superoctanos is out of service.

CITGO

On Friday, OFAC published General License 5S. Through this license, CITGO assets are protected from the holders of the so-called PDVSA 2020 bond, who are still awaiting a decision from a court in New York. Meanwhile, the auction process for CITGO assets in Delaware court continues on its path of advances and setbacks; an announcement from the case judge is expected in the next two months.


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


 

Tuesday, June 17, 2025

WAR IN THE OIL HEARTLAND TRIGGERS GEOPOLITICAL RISK


 

Like an earthquake, the growing tensions between Israel and Iran, deepened by the conflict in Gaza, finally materialized into what appears to be an undeclared war between the two Levantine countries. Israel, claiming that nuclear negotiations between Iran and the U.S. only served to buy Iran time to advance its plans to develop a nuclear weapon, and faced with Iran's repeated threats against Israel's very existence, decided to resort to military action.

On Friday, June 13, Israel deployed a surprise air attack, following what appears to be a long-standing plan, against nuclear facilities and related infrastructure on Iranian territory, also seeking to disable much of Iran's air defense and high military command. Immediately, Ayatollah Ali Khamenei, the supreme leader, promised to avenge the attack, and several waves of drones and missiles were fired toward Israel, an exchange that continued over the weekend.

Although these hostilities have not yet impacted oil and gas supply and distribution, the probability of an event capable of disrupting oil activities increased considerably, especially in the case of an escalation of these confrontations. World leaders called on the parties to sit down and negotiate, which is unlikely at this stage of events.

Market Impact

The stock market fell more than 1.5% on average. Gold and crude oil prices soared, with investors seeking a haven. Brent crude prices reacted with an initial increase of almost 14%, but began to decline as the market digested the details of the unfolding events.


GEOPOLITICAL ANALYSIS

Operation "Am Kalavi" (Rising Lion)

Middle Eastern geopolitics, which despite regional low-scale conflicts had been underestimated by the oil market, took control of the economic and military environment by increasing the probability of an escalation of these conflicts. The event that shook the world this week was Israel's massive attack on nuclear facilities and related infrastructure in Iran.

On the night of June 12-13, Israeli intelligence and air force carried out an unprecedented coordinated operation, dubbed "Am Kalavi" (Rising Lion), in the heart of Iranian territory. After the Israeli attack, the country's Prime Minister, Benjamin Netanyahu, communicated the details of the attack against "dozens of targets" related to Iran's nuclear program and other military points.

He also reported that, as part of this offensive, they had eliminated part of Iran's military leadership and high-ranking nuclear scientists; Iran's army has confirmed the death of at least six high-ranking military officials, including two General Staff generals. The Israeli government also stated that the attacks would continue until the Iranian threat was neutralized.

Iranian Retaliation

Ayatollah Khamenei, Iran's supreme leader, promised to avenge the attack, and Friday was Tehran's turn to respond. The retaliation began to be felt late in the afternoon throughout Israel. Iran has sent up to four waves of missiles, according to the Israeli Defense Forces (IDF), which have left at least three people dead and 80 wounded.

The famous Iron Dome neutralized the vast majority of missiles launched by Iran; however, an undetermined number managed to penetrate Israeli airspace, and one of them hit a large building on the outskirts of Tel Aviv. As of this report's closure, air exchanges between the two countries continue.

Risk of Escalation and the Strait of Hormuz

Under no circumstances can we consider that the back-and-forth has concluded. On the contrary, the probability of escalation is the most likely scenario. Various analysts speak of Iran potentially trying to obstruct the Strait of Hormuz to destabilize the oil and financial markets and thus put pressure on the West. China, the primary customer for its oil, may be the only one capable of dissuading them from such action.

To understand the implications of a Strait of Hormuz obstruction, let's remember that about 20 million barrels of oil and products pass through the strait per day and that alternative routes are scarce and limited in capacity.

Transportation Alternatives

Precisely to reduce the total dependence of regional producers on maritime passage through the Strait of Hormuz, several Persian Gulf countries have built pipelines that avoid the strait entirely:

  • Abu Dhabi Pipeline (UAE) transports oil from Abu Dhabi to the port of Fujairah in the Gulf of Oman.
  • Petroline (Saudi Arabia): This pipeline, also known as the East-West Pipeline, transports crude from the Persian Gulf to the port of Yanbu, on the Red Sea.
  • Iraq-Turkey Pipeline: This pipeline transports oil from northern Iraq to the Turkish port of Ceyhan in the Mediterranean. However, it is a pipeline dedicated to crude produced in Iraqi Kurdistan in the north and is temporarily out of service.

Recently, Iran has developed a new crude export terminal in Jask, in the Gulf of Oman, specifically to bypass the vulnerable Strait of Hormuz. This terminal is part of the Goureh-Jask pipeline, which extends about 1,000 kilometers from the oil fields of southwestern Iran to the port of Jask.

Limitations of Alternatives

These transportation alternatives have limited capacity and cannot completely replace the volume that flows through the Strait of Hormuz. The total capacity of all the mentioned pipelines is barely about 8 million barrels per day.

If a barrel deficit of this magnitude materialized, energy prices would soar to levels equivalent to $100/BBL in oil terms, even for a relatively brief period. In just a few days, oil market perception has shifted from nervousness about a minimal supply excess following recent OPEC+ announcements to concern about a potential shortage, demonstrating the fragility of the oil market balance.

International Reactions

Russian Federation President Vladimir Putin urged de-escalation during separate calls with the leaders of Israel and Iran on Friday morning, while condemning the Israeli attacks and offering condolences for the victims. In his conversation with the Israeli Prime Minister, Putin said that the Iranian nuclear issue must be resolved "exclusively through political and diplomatic means" and urged both parties to return to negotiations, even offering to help mediate. A somewhat paradoxical comment, coming from someone who has ignored the power of negotiation, both when deciding to invade Ukraine and, recently, refusing to agree to a ceasefire mediated by the U.S. However, Putin told his American counterpart, in a 50-minute phone conversation, that Moscow was ready to hold a new round of peace talks with Kiev after June 22, once the parties complete the exchange of prisoners and soldiers' bodies, reported Putin's assistant, Yuri Ushakov.

President Trump made somewhat ambiguous statements about the Israeli attack. First, he distanced himself from the Israeli attack, ensuring that the U.S. had not been part of the attack, then used the attack as a rhetorical lever, calling on Iranians to return to the stalled negotiating table.

Domestic Situation in the United States

As if the American administration didn't have enough with what's happening in its foreign policy, its domestic situation is beginning to heat up. In recent days, protests erupted in Los Angeles after a week of immigration raids in this city. Many people demonstrated against the Government and the U.S. Immigration and Customs Enforcement (ICE), which raided Latino communities and shopping centers to arrest migrants and advance toward their deportation.

The protests turned violent, maybe because California has a large immigrant population and a long history of street protests. If we add that it is a state led by a Democratic governor, Gavin Newsom, who seeks to appear as President Trump's quintessential opponent, we have an explosive equation.

President Trump sent 700 Marines and 4,000 National Guard troops to support the federal response to the riots, which infuriated local authorities, claiming that such a decision was unconstitutional and thus was sued in the courts. Meanwhile, protests are being repeated in other cities and states nationwide.


MARKET FUNDAMENTALS

The fundamentals of the oil industry have taken a back seat in price formation and commercial transactions. Despite projections published by the World Bank on June 10, no indications of reduced oil demand have been perceived. This foresees a deceleration of global growth to 2.3% in 2025, half a percentage point less than the rate forecast at the beginning of the year. The report does not foresee a global recession.

India and China continue to acquire increasing quantities of Russian and Venezuelan crude, respectively.

Supply

On the supply side, the net opening of OPEC+ volumes has not been of the announced magnitude. The only new supply increase is Exxon's announcement that production will begin to flow from its fourth FPSO in Guyana during the third quarter instead of year-end.

According to the EIA, the U.S. continues producing about 13 million barrels per day (13 MMbpd). According to Baker Hughes, drilling activity in the United States fell by another four units. The EIA’s weekly report also reveals another reduction in commercial crude inventories of 3.6 million barrels, while gasoline inventories increased by 1.5 million, directly related to higher refinery crude runs.

Monetary Policy

Economic results in the U.S., with lower inflation levels and labor market results lower than expected, seemed to guarantee that the Federal Reserve (FED) would reduce interest rates at its next meeting. However, in light of geopolitical events in the Middle East and their effect on energy costs, the decision could be postponed until we know how inflation will move.


PRICE DYNAMICS

The geopolitical risk premium is back, substantially elevating crude prices. In theory, OPEC+ continues to reduce its production cuts, and global demand is decelerating due to trade wars, according to the IEA and EIA. Even so, announcements of preliminary tariff agreements between the U.S. and China have reduced market anxiety.

Although Iranian oil infrastructure did not suffer damage in the Israeli attacks, anticipation of Iranian retaliation is already impacting the oil industry, with the Red Sea again as a scenario. Israeli gas fields were shut down preventively before the weekend, and Egypt is substituting diesel for natural gas.

The rise in barrel prices may seem like music to OPEC+'s ears, particularly Saudi Arabia, being able to carry out its production increase policy without suffering the effects of falling prices. Still, a long-duration conflict would not necessarily be in their interest. Incidentally, preliminary indications point to the announced opening of the cartel's production capacity not being immediately available, which is understandable given that investments have been maintained below what is required to counteract field decline.

Closing Prices (Friday, June 13):

  • Brent: $74.23/bbl
  • WTI: $72.98/bbl
  • Weekly gain: +10%

Note: At the close of this note, June 16, prices had begun to give up gains, as continued attacks between Israel and Iran do not affect key energy infrastructure, for now. Brent futures fell around $3, trading at $71.45 per barrel, while U.S. WTI futures fell around $2.75 per barrel, trading at $70.25.


VENEZUELA

The Venezuelan economy, sick from neglect

While the regime intensifies its efforts to consolidate its social and political control, the economy continues in decline, with no serious or practical attempt to institute a strategy that changes the regressive drift. The contraction of surviving economic activity, the reduction of tax collection and consumption, and the decreasing availability of foreign currency are symptoms that reveal the illness.

The value of the national currency continues its inexorable plunge; the exchange rate has already passed the mark of 100 Bs./$, not taking into account the 14 zeros it has already lost in the different monetary reconversions of the last 25 years. Monetary financing by the Central Bank is also increasing, which pushes inflation to worrying levels.

Political and Economic Crisis

With foreign currency shortages in the official market and the silencing of sources that publish the dollar value in the parallel market, importers who cannot get foreign currency in the official market, limited by the same administration to "basic necessities," have to become creative to avoid falling into shortages.

In the political sphere, which is already difficult to separate from the economic due to its severity, the news that broke through was the arrest or disappearance of well-known economists, including Rodrigo Cabezas, former finance minister in Hugo Chávez's administration, and now a critic of Nicolás Maduro. So far, there is no official information about the reasons for these detentions. However, it is safe to think that the regime seeks to silence the voices that still dare to analyze the critical economic situation.

The arrest of Cabezas and the other economists adds to an already long list of political leaders, civil activists, and journalists who have been taken to prison in the country since the end of 2023, most recently related to the May 25 elections and the publication of exchange rates in the informal foreign currency market.

Oil Operations

June is the first month of the new oil stage in Venezuela. No OFAC licenses and without access to the markets authorized by these licenses. Under these new conditions, almost all hydrocarbon exports are directed to China.

Generally, this is a cumbersome and costly operation, involving a process of origin legitimization in Malaysia or Singapore before final sale to Chinese refiners. Through this process, the weighted price of exports barely exceeds $30/bbl, for what has passed of June. The complexities of managing income, trying to avoid the U.S. financial system, using cash, cryptocurrencies, and barter, make it difficult to audit and maintain transparency of fund flows.

Productive Participation Contracts (CPP)

The operational activities that generated the production increase under the protection of OFAC licenses are being tried to be replaced with Productive Participation Contracts (CPP), a kind of hybrid between service contracts and production sharing contracts, which do not necessarily comply with the terms of the current Hydrocarbons Law; however, these limitations have been "circumvented" under the protection of the Anti-Blockade Law, whose legality is very questionable.


Of the 9 CPPs signed, three have been signed with:

  • China Concord Petroleum, to operate the block called Block 5 in Lake Maracaibo
  • Kerui Petroleum, to reactivate the joint venture PetroKariñas in the east
  • Anhui Erhuan Petroleum Group, for the Ayacucho 2 Block of the Orinoco Belt

The other six contracts were signed with companies of little substance or companies that withdrew for different reasons.


Export Strategy

For now, the goal is to replace the operational activity of multinationals with national service companies and direct exports to China. The export strategy is to dispatch about 8 to 10 supertankers (VLCC) monthly instead of the traditional 20 to 25 dispatches in tankers of varied sizes. Some of these VLCCs, anchored near the Amuay refinery, will be filled with crude and transported from Lake Maracaibo using coastal tankers.


Crude Production (last week):

Area

Mbpd

West

210

East

121

Orinoco Belt

514

TOTAL

845


Exports

It is too early to estimate June exports, especially under the new tanker profile. By Friday, four tankers had been dispatched, and one was being loaded, for approximately 520 MBPD for the week.


National Refining:

  • Processing: 220 Mbpd of crude and intermediate products
  • Gasoline yield: 83 Mbpd
  • Diesel yield: 71 Mbpd

Petrochemical Sector:

  • Methanol plants: 86% of capacity
  • Fertinitro: One ammonia and urea train operating

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

Tuesday, June 10, 2025

Energy Analysis Report. June 10, 2025

 El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA


The global oil market experienced a week of significant volatility, with barrel prices rebounding nearly 6% following a tight balance between supply and demand. The anticipated phone conversation between Trump and Xi Jinping partially calmed markets regarding trade tensions, while geopolitical conflicts on multiple fronts maintained elevated risk premiums.

According to the EIA, market fundamentals showed strength, particularly in the United States, where commercial crude inventories decreased by more than 4 million barrels. Canadian wildfires shut down 300,000 barrels per day of production, while internal frictions in Iraq between the central government and the Kurds reduce effective supply.

POLITICAL AND GEOPOLITICAL ANALYSIS

Domestic Tensions in the United States

The rift between Donald Trump and Elon Musk became the most relevant political event of the week, transforming into a public confrontation that impacted financial markets. Musk rebelled against the "Big Beautiful Bill," the ambitious tax bill that would add more than $2.4 trillion to the deficit over the next decade.

The conflict escalated when Musk accused the government of “ingratitude” and promised to block Congress's approval of the budget project. Cross-accusations on social media, including references to Jeffrey Epstein, caused an immediate decline in Tesla shares and halted the S&P 500's rise.

China-United States Trade Relations

The 90-minute phone conversation between Trump and Xi Jinping resulted in the resumption of trade negotiations scheduled for June 9 in London. This communication temporarily eased tariff tensions and opened possibilities for additional rare earth supplies, a critical element for the U.S. automotive industry

International Conflicts

Ukraine-Russia: Tensions intensified following a successful Ukrainian attack that destroyed part of Russia's strategic military aviation. In retaliation, Russia launched massive drone and missile attacks against Kyiv, Chernihiv, Lutsk, and Ternopil. Peace talks in Istanbul continued without concrete results.

United States-Iran: Nuclear negotiations remain stalled after Tehran rejected transferring its enriched uranium inventory to the U.S. Treasury Department. The United States responded with new sanctions targeting 10 individuals and 27 Iranian commercial entities.

Middle East: The situation in Gaza continued to deteriorate with multiple Israeli attacks in the Muwasi area and operations against Hezbollah installations in Beirut. Threats from Yemeni Al Qaeda against Trump and Musk added a new dimension of regional risk.

MARKET FUNDAMENTALS

Global Supply

U.S. production remains stable at 13.3 million barrels per day, with a slight declining trend. According to Baker Hughes, the number of active rigs decreased, with four additional rigs ceasing operations.

According to the EIA, U.S. commercial crude inventories decreased by 4.3 million barrels, reflecting healthy demand despite lagging exports due to tariff discussions.

OPEC+ implemented nominal production increases of 450,000 barrels per day, mainly in Saudi Arabia, the United Arab Emirates, Kazakhstan, and Oman. However, internal confrontations in Iraq between Baghdad's central government and the Kurdistan Regional Government continue to affect the cartel's effective production.

Mexico, an OPEC+ member, has not managed to halt the decline in its production. In the first quarter of 2025, its production fell to 1.62 million barrels per day, representing an 11.3% decrease compared to the previous year. Crude production in May was 1.5 million barrels per day. Canada faces disruptions from wildfires that keep 300,000 barrels per day of production shut down, although recent rains have provided some temporary relief.

U.S. payroll growth slowed modestly in May, adding 139,000 jobs. The unemployment rate remained stable at 4.2%, providing critical data for future Federal Reserve decisions.

Investment Outlook

According to the new IEA World Energy Investment 2025 report, global energy investment will reach a record $3.3 trillion. Clean energy technologies will attract $2.2 trillion, double that of fossil fuels.

Investment in oil, natural gas, and coal is estimated at $1.1 trillion, a 6% reduction from the previous year. This trend raises concerns about future supply crises and risks to energy security.

PRICE DYNAMICS

Barrel prices closed the week with a gain of over 5%, driven by trade negotiations between the United States and China and the maintenance of high geopolitical risk premiums. At Friday's close on June 6, Brent and WTI benchmark crudes were trading at $66.47/bbl and $64.58/bbl, respectively.

The market has modified its projections, shifting the crude oversupply forecast from 2025 to well into 2026, reflecting a tighter supply and demand balance than previously anticipated.

VENEZUELAN SITUATION

Political Landscape

The Venezuelan regime surprisingly announced a municipal electoral process for July 27, with extremely brief timeframes that make it challenging to organize candidates and campaigns. The results of the May 25 elections have not yet been formally published, although the National Electoral Council has already assigned National Assembly seats without following established legal procedures.

Economy and Policies

Vice President and Oil Minister Delcy Rodríguez has modified her usual discourse, now mentioning low international oil prices and the need to preserve foreign currency. There is talk of "coordination" to "harmonize" the economy instead of direct price controls.

The Maduro administration continues seeking relief from U.S. economic sanctions, exempting President Trump from responsibility and seeking allies like Richard Grenell. Triangular bartering through traders is being explored to solve the diluent and fuel problem.

Foreign currency availability has decreased in May due to lower crude prices and the implementation of oil export collections through non-traditional mechanisms, including cryptocurrencies. The official exchange rate has exceeded 98 Bs./$.

During the weekend, unconfirmed rumors circulated about a possible increase in non-subsidized gasoline prices from $0.5/liter to $0.75/liter.

Oil Operations

June represents a critical month as it is the first without the benefit of OFAC licenses, which expired on May 27. Production activities that Chevron and Maurel & Prom managed in their respective joint ventures are being transferred to PDVSA, including the PetroPiar upgrader in José. Meanwhile, Repsol indicated it continues in conversations with U.S. authorities.

National Production:

  • Total production: 840,000 barrels per day
  • West: 208,000 bpd
  • East: 121,000 bpd
  • Orinoco Belt: 511,000 bpd

Refining:

  • Average processing: 227,000 bpd of crude and intermediate products
  • Gasoline production: 86,000 bpd
  • Diesel production: 74,000 bpd

May Exports:

Total crude: 628,000 bpd

  • China (direct and via Malaysia): 432,000 bpd
  • Cuba: 80,000 bpd
  • United States: 116,000 bpd

Refined products: 55,000 bpd (mainly to Singapore and asphalt to the U.S.)

Regional Development

Trinidad and Tobago advanced in the Shell natural gas project at the Manatee discovery, which is continuous with the Lorán discovery in Venezuelan waters. The project's production start date is 2027, which could affect Venezuela's future interests in developing the Lorán Field.

CONCLUSIONS AND OUTLOOK

The global oil market is highly volatile, characterized by multiple geopolitical tensions and relatively solid fundamentals. Supply disruptions, sustained demand, and international conflicts maintain elevated risk premiums.

The outlook for the rest of the year points to a tight supply and demand balance, with the potential for additional volatility depending on the evolution of geopolitical conflicts and trade policy decisions by major economies.

In Venezuela's specific case, the country faces significant political and economic challenges. Oil production remains marginal globally, and the fiscal situation requires structural reforms to achieve sustainable stability.

 

TRUMP SEEKS TO SHORTEN TIMEFRAMES IN THE IRAN-ISRAEL CONFLICT

El Taladro Azul M. Juan Szabo [1] y Luis A. Pacheco [2] Published  Originally in Spanish in    LA GRAN ALDEA   The development and outcome o...