AN INTRIGUING OIL MARKET

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

Predictions of a global oil oversupply and geopolitical tensions related to Russia's persistent attitude of seizing Ukrainian territories at all costs marked the oil market this week. This resulted in a week of stable but downward-trending prices, albeit with intraday volatility.

The international community anticipates that President Trump will take action against the Cartel of the Suns and other terrorist organizations allegedly operating in Venezuela and its surroundings. Still, oil markets have not reacted to this threat that would affect supply, and sentiment leans bearish. On the other hand, the U.S. federal government shutdown is affecting jet fuel consumption nationwide. However, gasoline and distillate inventories have fallen sharply, suggesting that oil demand may be stronger than crude inventories indicate.

The United Nations climate change summit, COP30, is being held in Brazil between November 9 and 21, with less fanfare than previous COPs, for various reasons, including the absence of the U.S.

The ten years since the signing of the Paris Agreement at the United Nations Climate Change Conference (COP21), which sought to mitigate warming by placing limits on greenhouse gas emissions, have been nothing short of disappointing. For activists, politicians, and legislators, the measures have not been effective in achieving the sought-after goal, which is now generally considered unattainable. Thus, one of the challenges of the new summit is to guide environmental activity along more collaborative paths and minimize the dogmas on both sides of a discussion that remains necessary in the long term.

GEOPOLITICS

Geopolitical developments have generated a sense of global uncertainty. The belligerence between major powers presents the most destabilizing situation, a confrontation closely linked to debates about the future world order. As if it were a regression to the 20th-century Cold War, the specter of nuclear weapons raises its head again, this time in the speeches of Presidents Donald Trump and Vladimir Putin.

Elections in the United States

Different state and local calendars govern gubernatorial and mayoral elections in the U.S., and the most recent ones took place on Tuesday, November 4, 2025. These elections are important political barometers and do not follow a uniform federal cycle. President Trump has acknowledged that the results were not "good" for Republicans, but has assured that his party learned "much" from them, without being very specific about what. Across the country, participation in local elections was very high. In the gubernatorial elections in New Jersey and Virginia, where Democrats Mikie Sherrill and Abigail Spanberger won, they campaigned with an anti-Trump message.

In the New York City mayoral election, as expected, Zohran Mamdani emerged victorious: the first immigrant to be elected mayor of the city. Mamdani, born in Uganda to Indian parents, professes the Muslim faith; he is a member of the Democratic Party and the Democratic Socialists of America organization. His left-wing populist platform has made him the main political target of the White House, which labels him a communist and promises to besiege him economically.

Federal Government Shutdown

The U.S. federal government remains in an active shutdown, initiated on October 1st, which, as of this writing, has become the longest government shutdown in the country's history.

The shutdown, resulting from the lack of budgetary agreement between Democrats and Republicans, has caused approximately 750,000 federal employees to be temporarily furloughed, while others, considered "essential," continue working without receiving pay. The situation is significantly affecting various services, including delays and cancellations of hundreds of flights at major airports across the country due to the shortage of air traffic controllers, as well as the suspension of social programs such as SNAP (Supplemental Nutrition Assistance Program, also known as food stamps). A significant issue is the impact on the generation of economic statistics, which are essential for informed market decision-making.

Note: A Sunday night Senate agreement could be about to resolve the government shutdown, after a group of moderate Democrats dropped their key demand: a guaranteed extension of Obamacare subsidies. The agreement paved the way for a Senate vote in which eight Democratic defectors voted to break the legislative logjam and clear the first obstacle to reopening the government after nearly six weeks.

Putin's Tunnel Vision

Vladimir Putin's obstinacy in controlling all of eastern Ukraine through a war of military attrition and, in the civilian sphere, through intense bombing of indiscriminate targets throughout the country, continues to claim victims and raise the geopolitical temperature. Ukraine's response has been to defend its positions to the utmost, as on the Pokrovsk front; it also continues its drone attacks against Russian oil facilities, which are effectively affecting the Russian oil business and, therefore, its ability to finance the war.

The export of Russian refined products has been considerably reduced due to damage to refineries and shipping terminals, resulting in a surplus of crude oil for export. This surplus, however, faces limitations due to U.S. sanctions on oil companies Rosneft and Lukoil, as well as general sanctions imposed by the EU.

The issue of the U.S. supply of Tomahawk missiles to Ukraine remains on the table, awaiting only President Trump's approval. By the way, Trump negotiated an exception to the sanctions with President Orbán, allowing Hungary to access Russian fuel, which was justified by the country's limited access to maritime terminals for meeting its energy needs. Hungary, a full member of the European Union, thus distances itself from the Union's general position.

Gunvor Blinked

The Cypriot-Swiss commodities trading company, Gunvor, has withdrawn its $22 billion offer for Lukoil's foreign assets after the U.S. Treasury Department announced it would deny the license, calling it a "Kremlin puppet," and signaling Washington's opposition to the operation. The decision frustrates what would have been the largest acquisition in Gunvor's history. It highlights Washington's effort to make sanctions effective in isolating Russia and suffocating the income it uses in the war in Ukraine.

Gunvor responded by email that the Treasury Department's statement was "fundamentally wrong and false" and expressed its willingness to "take the opportunity to correct this clear misunderstanding." Meanwhile, Gunvor is withdrawing its proposal for Lukoil's international assets.

Peace in the Middle East, Little Progress

The Palestinian-Israeli conflict and the situation in the Middle East remain constant points of attention; the fragility of the ceasefire in Gaza and the successful Israeli incursions against Hezbollah in southern Lebanon maintain the region's instability. Hamas returned several bodies of hostages and Israeli soldiers.

Kazakhstan declared it will join the Abraham Accords between Israel and Arab and Muslim-majority countries. The action, announced on Thursday, is largely symbolic, as Kazakhstan has maintained diplomatic relations with Israel since 1992 and is geographically farther from Israel than the other Abraham Accord nations: Bahrain, Morocco, Sudan, and the United Arab Emirates.

FUNDAMENTALS

Elucidating the issue of oil oversupply is becoming increasingly complex, which is not surprising when dealing with projections of multiple variables with limited relative interdependence. Projections based on technical arguments, if not theoretical, do not correlate with current actual figures. For example, firm announcements of production increases often fail to materialize in reality. The International Energy Agency (IEA), the Energy Information Administration (EIA), and some banks, which have been projecting significant volumes of incremental production, now justify the delay in the materialization of their scenarios by indicating that a good part of the production "surpluses" are going to fill China's strategic reserves and that another significant volume is in floating inventory: in transit aboard tankers, presumably sailing without final buyers.

There are no solid reasons to doubt these explanations. Still, we consider that the strategic reserves of different countries around the world, including those of the U.S., which, by the way, must be replenished, form part of the firm demand that global supply must meet. As for the increase in floating volumes, this is due to the sanctions imposed on Iran, Venezuela, and Russia, which transit longer at sea due to their complex transshipment processes, including blending, name changes, and ownership changes, which aim to disguise the origin of the crude oil. This process of circumventing sanctions is becoming increasingly time-consuming as monitoring becomes more efficient.

In any case, for the remainder of 2025 and 2026, we believe the market is heading toward maintaining a healthy balance between demand and supply, under conditions in which the idle production capacity of countries such as Saudi Arabia, the UAE, and Iraq has been exhausted during the market recapture process. By the way, China's oil demand reached higher levels, attracted by higher refining margins, which intensified the utilization of the refining fleet, both public and private.

According to the ADIPEC conference (Abu Dhabi International Petroleum Exhibition and Conference), an annual event that brings together leaders, companies, and experts from the global energy sector, there are indications of healthy oil demand through 2026. This was complemented by OPEC+'s decision to pause production increases in the first quarter of next year; we think this is due to the non-existence of surplus crude. When asked about the possibility of excess oil in 2026, UAE Energy Minister Suhail al-Mazrouei stated that "I'm not going to talk about an oversupply scenario," adding that "I think everything we're seeing is more demand."

Eight OPEC+ members will meet again on November 30, the same day as the whole group meeting. The last element of the cuts for the entire group will remain until the end of 2026, according to the agreement announced last week.

Regarding the activities of the U.S., Canada, Brazil, Guyana, and Argentina, which are mentioned as sources of production growth in the coming months and years, we observe no significant differences from our analysis outlined in recent editions. In this regard, the U.S. and Canada maintain maintenance activities rather than growth, in line with the financial discipline that operators apply in this price range. Guyana and Brazil increase their production as new floating production units (FPSOs) enter service and carry out their "ramp up" process, resulting in approximately 150 kbpd additional in Guyana and 350 kbpd in Brazil until the end of 2026. In the case of Argentina, the foreseeable increases in scheduled activities are expected to be approximately 70,000 barrels per day (kbpd) over the next 13 months.

We conclude, based on all available information, that there is a global need for more energy and that conditions must be ensured to incentivize investments that meet these increases, including, in particular, the growth of AI and data processing centers.

Price Dynamics

Oil prices showed volatility, with a general downward trend, although they recorded a modest rebound at the end of the week. The futures market was marked by scenarios pointing to a global supply surplus, OPEC+ decisions, and an increase in U.S. commercial crude inventories. However, the increase corresponds entirely to higher crude imports and lower refinery runs, which were offset by a considerable reduction in gasoline and distillate inventories.

Thus, at market close on Friday, November 7, the benchmark crudes, Brent and WTI, were trading at $63.63/bbl and $59.75/bbl, respectively, representing a 1.8% loss compared to the previous week's close.

VENEZUELA

Are All Options on the Table?

Venezuela's political-economic situation has been characterized by the persistence of its economic crisis, which Nicolás Maduro's administration insists on camouflaging behind growth figures, in stark contrast to information issued by international organizations. Politically, pockets of instability and the repression of dissent mark the atmosphere. Added to this is the non-specific external military threat against the alleged narcoterrorist activities of the Cartel of the Suns. Unverified information suggests that communication channels exist for negotiating the end of the current administration. On the other hand, formation flights of military aircraft are observed in the national territory, and surface-to-air missiles are deployed, in an evident strategy by the regime to show strength internally.

In the economic sphere, the most significant development is that efforts to close the gap between the official dollar exchange rate and other markets have suffered a setback due to the cut in hydrocarbon exports in October. Without foreign currency, the outlined strategy cannot be implemented. In fact, a slight rebound in the gap has been observed in recent days. Despite efforts to cut public spending, the material reduction in foreign currency supply at the official rate, and the significant increase in foreign currency supply at higher rates, the official rate reached 231 Bs./$, and the gap with other markets stood at nearly 37%.

While private sources and international organizations agree that the country is in a recessionary process, characterized by reduced consumption, currency devaluation, and runaway inflation, official information from the officials in charge of the economy indicates sustained GDP growth of 8%.

Oil Operations

At the José Antonio Anzoátegui Complex (also known as José), located on the northeastern coast of the country, an operational emergency developed, escalating into an environmental emergency affecting the area, including surrounding towns and cities.

The accident appears to have originated in one of the complex's upgraders, which processes Orinoco Belt crude, specifically in an explosion related to coking drums. However, it has not yet been determined whether the incident occurred at PetroCedeño or PetroPiar (two of the Orinoco Belt's joint ventures), although all indications suggest that it took place at PetroCedeño due to its proximity to the complex. The flames reached the coke and sulfur accumulations located at PetroRoraima facilities, generating an enormous toxic cloud that enveloped a large area around the complex, and the surrounding cities were engulfed in a white cloud.

After at least two days, the fire was extinguished. As of Sunday night, there has been no official statement from either PDVSA or central or local authorities, nor have instructions been given for affected civilians. There are rumors of fatalities, but there is no official information.

This accident may have affected tanker loading and diluent unloading activities; however, due to the secrecy in information handling, delays have not been confirmed.

The delay in the arrival of Russian diluent affected Merey crude blending in the second half of October and continues to impact blending capacity. Apparently, the delay was due to logistical problems at the terminal and payment problems.

Production and Refining

Weekly crude production averaged eight hundred sixty-three thousand barrels per day (863 kbpd), geographically distributed as follows:

• West 228                  Chevron: 108

• East 118

• Orinoco Belt 517      Chevron: 125

• TOTAL 863              Chevron 233

National refineries processed 226,000 barrels per day (kbpd) of crude and intermediate products, yielding 75,000 kbpd in gasoline and 79,000 kbpd in diesel.

In the petrochemical sector, operations continued without changes from the previous week; however, it is unclear whether the accident in the Jose area impacted the operation of petrochemical plants.

Exports

Exports during the first days of November followed the pace of October, but we suspect there will be some delays due to the emergency the complex is currently experiencing.

We estimate that the weighted price of exported crude oil is $ 30.60 per barrel.

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

 

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