SHORT-LIVED PREDICTIONS

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

Just a few weeks ago, at the end of 2024, many oil market analysts, primarily investment banks like JP Morgan, Citi, Wells Fargo, and Goldman Sachs, revised their price forecasts downward, predicting an oversupplied market in late 2024 and throughout 2025. Their analysis logic was based on weak demand due to China's economic decline and energy transition. Additionally, they factored in significant production growth from countries outside OPEP+, whose strategy of maintaining cuts during the first quarter of 2025 confirmed this analysis.

 

It only took the mention of potential increased sanctions on Russia by the US and the presence of cold fronts in the northern hemisphere for the apparent robustness of this analysis to falter. While it's unsurprising that many analysts now view 2025 with optimism and are announcing much higher price predictions than a couple of months ago, we shouldn't place too much confidence in these changing winds. After all, the truth is that the price increase so far this year places prices near last year's average, mainly because neither global demand has decreased nor have the barrels from the mentioned countries appeared, except for Canada and Argentina, at least in the last months of 2024.

 

Crude oil prices have strengthened, reaching their highest levels since early October 2024. The price recovery is fueled by low temperatures and the effect of the latest sanctions from the Treasury Department, which has been more active and aggressive in the last month and a half than in the previous 46 months. Thus, the change in perception of fundamentals and geopolitical effects have contributed to January's correction.

 

Fundamentals

 

Two components, representing more than half of global crude production, have helped stabilize the supply side: OPEP+ discipline and US production.

 

OPEP+ has stayed close to the established quota for the cartel regarding crude placed in the market, though with differences in expected volumes from some countries. The slight overproduction from Saudi Arabia, UAE, and Kazakhstan has been more than offset by production reductions or capacity to place produced barrels in the market from Russia, Iraq, Iran, and Mexico. New sanctions against both countries' dark fleet ships and related shipping companies have affected Russia and Iran. Meanwhile, Iraq has had to reduce production in the Rumaila field, the country's largest, due to reduced electricity generation from insufficient natural gas from neighboring Iran.

 

The US, for its part, has maintained constant production, according to the Energy Information Administration's (EIA) weekly report, at thirteen million five hundred thousand barrels per day (13.5 MMbpd), relatively constant over the last 6 months. In contrast to this production profile, rig utilization, according to Baker Hughes' weekly report, fell by five units, distributed between gas and oil. In the same report, the EIA reported another drop in commercial crude inventory levels related to lower imports and reduced refining runs. However, gasoline inventories continued to rise, partly due to the closure of two pipelines in Los Angeles due to power outages related to forest fires.

 

The forecasted increases in non-OPEP countries for late last year and early 2025 have yet to materialize. Most of these increases are scheduled for the last three quarters and collectively offset demand growth, which most forecasters now, except for the International Energy Agency (IEA), place at one million five hundred thousand barrels per day (1.5 MMbpd).

 

Additionally, short-term elements, such as arctic temperatures experienced in the northern hemisphere, have supported gas and fuel demand. In the longer term, energy requirements for data centers and AI will boost demand, especially for gas and nuclear energy. However, this will also be reflected in oil prices.

 

We are in a seller's market, and the probability of it remaining that way is increasing, or at least that's how the market perceives it.

 

Geopolitics

 

Although Donald Trump hasn't yet been sworn in as US president, he has opened several surprise boxes. The president-elect has insisted that the Panama Canal should return to the US. He also stated that Greenland should become part of his country and suggested that Canada should be the 51st US state; to not give his southern neighbor a free pass, he announced that the Gulf of Mexico would be renamed the Gulf of America. As expected, all four countries reacted negatively, but the warning flag was raised, although it's difficult to know if it's anything more than fireworks.

 

According to Trump, these territorial changes are necessary for "America's defense" and to curb Chinese/Russian imperialism. He also proposes that NATO countries substantially increase their defense budgets, an aspiration he inherited from his previous administration.

 

The mere presence of Trump and his programs to return the US to a supposed past glory has made the Biden administration, in its final moments, make hurried decisions that it hadn't made for almost 4 years. In particular, the outgoing administration has issued new regulations to limit fossil fuel development, immigration, and international policy, particularly in sanctions. The latter has the potential to affect the oil trade materially.

 

For example, it's reported that the Shandong Port Group, operator of key oil ports used by China's independent refineries, in response to US sanctions, has banned access and services to tankers sanctioned by the US Treasury. The ports where the ban is in effect are Qingdao, Rizhao, and Yantai, on China's east coast, which are key crude import sources for independent Chinese refineries, known as teapots, buyers of sanctioned crude from Iran, Russia, and Venezuela.

 

Regarding military conflicts in the Middle East, there is pressure to achieve a ceasefire in the Gaza Strip and exchange hostages for prisoners of war; the goal is to reach the agreement before President Biden's departure. But while negotiations continue, Israel continues with bombardments seeking to eliminate remaining terrorist forces. Additionally, according to the Houthi-affiliated television station, it was reported that Israel launched airstrikes against the western ports of Ras Isa and Hodeidah, the central Hezyaz power plant near Sanaa, and the Harf Sufyan district of Amran province.

 

On the Russian/Ukrainian front, confrontations have continued, with supposed advances announced by both sides; even North Korean prisoners of war are mentioned, but true hope centers on possible negotiations that Trump has been announcing since before his appointment. Now, there's talk of a meeting between Donald Trump and Russian President Vladimir Putin as soon as Trump takes office.

 

In summary, the most critical result of geopolitics so far this month is the effect being produced by incremental sanctions related to crude oil transport from Russia, Iran, and, eventually, Venezuela.

 

Price Behavior

 

With the revival of oil market optimism, evidenced by inventory reductions, prices reached last year's average levels and the highest in several months.

 

Thus, at market close on Friday, January 10, 2025, the marker crudes Brent and WTI were quoted at $79.76/bbl and $76.57/bbl, respectively. This week, the barrel price increased more than 4% compared to the previous week. Oil markets opened higher this Monday, January 13, with Brent crude surpassing $81/bbl.

 

VENEZUELA

A New Totalitarianism

 

On January 10, despite incontrovertible evidence of electoral fraud and widespread condemnation from the international community, Nicolás Maduro was sworn in for a new presidential term. In a brief ceremony, Maduro consolidated what can be described as a new-style Latin American Totalitarianism, surrounded by supporters, inner circle members, and a strong military presence. The anemic ceremony had limited attendance from prominent international representatives, perhaps except for OPEC’s Secretary General; notably absent were Presidents Lula, Petro, and Sheinbaum (although their ambassadors were present).

 

The regime temporarily closed the borders with Colombia and Brazil, as well as the airspace, and deployed missiles as a threat against any possible attempt by Edmundo González Urrutia, the legitimate winner of the July 28, 2024 elections, and his companions, to enter the country to be sworn in as Constitutional President of Venezuela, as had been announced. The opposition leadership avoided any incident, even by error, and canceled the arrival for a more convenient opportunity.

 

Perhaps the most disappointing aspect of this Venezuelan episode is realizing, if it was necessary, the ineffectiveness of international institutions as guarantors of democracy and the freedoms they claim to protect and represent.

 

On January 9, responding to the call of María Corina Machado and Enrique González Urrutia, massive demonstrations materialized in almost all cities across the country; the one in Caracas featured the reappearance of María Corina Machado after months of being in hiding. At the end of her intervention, MCM was pursued by security forces and kidnapped for a brief period, after which she was released, apparently due to a change of plans or counter-orders from the dictatorship. This is further evidence of the opposition leader's courage and the thorny path she has traveled so far, along with her team and political allies.

 

The events of January 9 and 10 undoubtedly disappointed the population, which desires and needs political and economic change and must now regroup to face the challenging times ahead.

 

Following Maduro and his military clique's assault on democracy, the European Union imposed additional sanctions on more regime officials, both civilian and military. Meanwhile, the U.S. government increased the reward for the capture of Nicolás Maduro and Diosdado Cabello to $25 million each and $10 million for Defense Minister General Padrino López. Additional sanctions, including review of OFAC licenses, could result from the new U.S. administration that begins on January 20.

 

The economy continues to deteriorate as uncertainty and adverse reactions to the consummation of electoral fraud increase. The regime has been actively intervening in the exchange market to stop currency devaluation. Still, the official exchange rate is already at 53.88 Bs/$, and the unmentionable parallel rate is reaching 70 Bs/$. Consequently, annualized inflation is now approaching 90%.

 

Chinese ports' refusal to accept ships sanctioned by OFAC could also affect oil revenues. The Biden administration has decided to pass the baton of Chevron and other licenses to Trump, so we won't have to wait long.

 

Oil Operations

 

No material change has occurred regarding production, refining, availability, or natural gas flaring. However, an additional spill was reported at the Paraguaná Refining Center (CRP) Paraguaná, where a storage tank collapsed, and some crude reached the Gulf of Venezuela.

 

Production during the last week averaged eight hundred and fifty-five thousand barrels per day (855 Mbpd). The regional distribution of production is shown below:

 

• West                                    204 (Chevron 91)

• East                                     131

• Orinoco Belt                        520 (Chevron 112)

• TOTAL                                855 (Chevron 213)

 

Of the total production of 855 Mbpd, almost 300 Mbpd correspond to joint ventures operated under OFAC licenses by Chevron, Repsol, Maurel, and Prom; that is, 35% of the total to be commercialized using market prices and to pay part of the debts.

 

Refining runs averaged 212 Mbpd of crude and intermediate products, with a gasoline yield of 77 Mbpd and a diesel yield of 70 Mbpd.

 

The domestic LPG (liquefied petroleum gas) cylinder market situation continues to be very deficient, as pumping from Jusepín to Jose has not been restored.

 

Crude exports are below the month's planning. However, it's too early to know if the January programming of 670 Mbpd will be met.

 

The operation of Jose petrochemical plants continues to be limited by natural gas availability; methanol plants are operating at 70% capacity, and the fertilizer plant has stopped.

THE OIL MARKET BEGINS 2025 WITH CAUTIOUS OPTIMISM

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

After the end-of-year holiday season, which affected transaction volumes and activity, oil market activity has been marked by apparent price optimism. The reduction in U.S. crude inventories, coupled with renewed hope in the effectiveness of economic stimulus in China and the conviction that Trump's tariff ultimatums are more of a negotiation ploy than a unilateral decision, have induced this optimism.

 

Signs indicate that, for now, the “bad scenarios” of economic recession have been removed from the board, improving global economic growth predictions. This short-term relief is accompanied by weather forecasts of a sharp decline in January temperatures that should boost energy demand.

 

Hydrocarbon market participants should pay attention to natural gas prices, which led to the energy price rebound at year-end; benchmark indices in the U.S. and Europe recorded highs in 2024. Weather changes, combined with geopolitical and operational complications in the pipeline and liquefied natural gas business, increase natural gas prices and favor using liquid fuels for availability and economic reasons.

 

Markets also found support in OPEC+'s quota discipline following the cartel's decision to delay planned production increases.

 

The incoming Trump administration is also expected to move toward tightening sanctions targeting Iran and possibly Venezuela, adding to the recent U.S. and European offensive against Russia's parallel maritime fleet.

 

Fundamentals

Much of the early-year optimism is due to renewed hopes that Chinese demand will regain momentum after the central government promised various stimulus measures to boost economic activity.

 

President Xi Jinping said this week that China's economy is on track to close 2024 with 5% growth, in line with official growth targets, while downplaying concerns that the incoming Trump administration would harm Beijing's prospects through a series of tariffs. Xi said China's economy was “generally stable and progressing,” adding that risks in key economic sectors had been effectively addressed.

 

However, it cannot be ruled out that China will face trade negotiations and restrictions with the U.S., while the real estate sector will continue to drag the overall economy.

 

Meanwhile, Chinese manufacturing activity grew in December, albeit slower than expected, according to a Caixin/S&P global manufacturing survey. Overall sales were affected by a drop in export orders amid concerns about international trade prospects.

 

On the other side of the world, oil faces headwinds due to the rise in the U.S. dollar, pushing prices downward. The U.S. dollar index gained more than 2.5% in December, marking the third consecutive month in positive territory.

 

Meanwhile, U.S. Energy Information Administration (EIA) data revealed that U.S. crude inventories fell by 1.2 million barrels (MMbbls) despite a 3.5 MMbbls increase in crude imports. However, gasoline and distillate inventories recorded the most significant increase in almost a year due to lower post-holiday demand and increased domestic oil processing.

 

U.S. oil activity and crude production have been remarkably steady, around thirteen million barrels per day (MMbpd), which has motivated OPEC+ to maintain its price defense policy and postpone opening the supposed volumes cut by the cartel.

 

According to AccuWeather, the U.S. will be affected by Arctic cold waves, significantly increasing energy demand and the risk of freeze-related damage in southern states. Meteorologists predict that “This could end up being the coldest January since 2011.”

 

On another front, Russian supply has also decreased. The reasons are various: on the one hand, Moscow has been under increased pressure to align with its OPEC+ quota, while increased sanctions pressure on Moscow's “shadow fleet” of tankers has also influenced the reduction in Russian shipments; on the other hand, the simple decline of fields due to insufficient investment.

 

Saudi Arabia has regained some of Russia's market share in Asia as its exports increased. At the same time, Russian crude sales in the world's most crucial oil-importing region fell amid lower purchases from Moscow's two key markets, China and India.

 

Geopolitics

The impact of military conflicts has temporarily taken a back seat. The geopolitical variables influencing oil market perception in these first days of the year were more subtle elements of economic sanctions management strategy and attempts by sanctioned entities and their instruments to avoid them.

 

Iranian oil shipments, for example, are increasingly accumulating as floating inventory offshore in Southeast Asia rather than reaching final markets. A recent series of U.S. sanctions on tankers carrying Iranian oil has caused Chinese buyers to be more cautious.

 

The U.S. Treasury and State Departments designated several companies based in Suriname, India, Malaysia, and China, among others, for “knowingly engaging in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran.”

 

In the Middle East, Israel has continued its campaign to eliminate what remains of Hamas, including bombings this past Saturday. The Israeli Army made no immediate comments about the incident. Still, the army stated in a Saturday statement that it continued its operations this week in the town of Beit Hanoun, where the army has been operating for three months, and destroyed a military complex that Hamas had used.

 

The increase in Israeli operations recently comes amid renewed pressure to reach a ceasefire in this 15-month war and push for the release of Israeli hostages before U.S. President-elect Donald Trump takes office on January 20.

 

In Yemen, the Houthis reported several attacks their forces carried out, 22 events in one week, against U.S. and Israeli targets. The targets were Tel Aviv, Ben Gurion Airport, Nevatim Air Base, a power plant in Jerusalem, and the USS Harry Truman aircraft carrier. Presumably, all these attacks were intercepted, as there were no reports of damage.

 

Regarding the war between Russia and Ukraine, about to enter its fourth year, and with Trump coming to power, the question of how and when Europe's most significant conflict since World War II might end is on the table.

 

Zelenskyy says that Trump's strength and unpredictability could help end the war in Ukraine. The current situation is that Russia controls approximately one-fifth of Ukraine in the east, an advance achieved partly last year when it took advantage of weaknesses in Ukrainian defenses in these areas despite heavy losses of troops and equipment. For its part, Ukraine holds on to Russian territory in the Kursk region, which Zelenskyy describes as a “powerful trump card” in any future peace negotiations. However, the development of events does not favor Ukraine, which lacks personnel at the front and needs continued support from its Western partners.

 

Trump responded favorably to French President Emmanuel Macron's suggestion of deploying Western peacekeeping forces in Ukraine to oversee an agreement ending the fighting. As observed, everything seems to revolve around the position and activism that the U.S. will take after Trump's inauguration.

 

Price Behavior

The oil market shook off the pessimism it had been carrying since last year and decided to give Chinese economic stimulus the benefit of the doubt. The forecasted frigid temperatures hinted at increased demand. Inventories generally do not indicate overproduction, and OPEC+ provides some coverage for volumetric risk. The gas problems in Europe also present potential incremental demand.

 

Thus, at market close on Friday, January 3, 2025, Brent and WTI benchmark crudes were trading at $76.51 and $73.96/BBL, respectively. The first week of 2025 closed with an average gain of 4% compared to the previous week.

 

Natural Gas

The U.S. and Europe are preparing for a significant temperature drop, coinciding with the cessation of Russian natural gas flow to Europe through Ukraine. Ukraine says Russia has not designated any gas flow through Ukrainian pipelines for January 1. The decision was made when Ukrainian President Volodymyr Zelenskyy announced he had no plans to renew the five-year agreement signed in 2019 between the two countries, now at war. The agreement allowed Russian natural gas exports to the European continent to transit through Ukraine before being routed to their destination. The agreement was very lucrative, paying billions to the Kremlin in revenue and to Kyiv in transit fees. Ukraine will lose around 800 million euros annually in transit fees, and Gazprom will lose 5 billion euros in revenue from this agreement. Russian pipeline gas constituted about 8% of the European bloc's gas imports in 2023 (total European Union imports of Russian gas were around 15% of its consumption that year, combining pipeline and liquefied natural gas imports). In contrast, pipeline imports were more than 40% in 2021.

 

The European Union presented several contingencies in a report to help affected countries. Some existing contingencies include covering needs through Greek, Turkish, and Romanian gas supply via the trans-Balkan route and increased supply from Norway, both through pipelines and as LNG; Germany can help with gas distribution through Central Europe. The report also envisions strengthening liquefied natural gas (LNG) purchases from Qatar and the U.S.

 

However, unforeseen events always arise, including the slower growth in U.S. LNG availability due to restrictions imposed by the Biden administration, which have delayed the execution of some projects. In the short term, the unexpected shutdown of the Hammerfest LNG plant, owned by Equinor, located in northern Arctic Norway, presents specific supply problems; according to a regulatory statement published Thursday on the website of Gassco, the Norwegian pipeline operator, this has halted all production for at least a week.

 

Global LNG supply is expected to have grown by 2% for all of 2024, the slowest growth rate since 2020. As several large LNG projects come online, LNG supply growth is expected to accelerate to close to 6% in 2025.

 

Trump has promised to encourage production in the early stages of the production chain and is also expected to lift a Biden-era moratorium on licensing new liquefied natural gas export facilities. For now, these events have raised gas prices in Europe by around 25% in the past two weeks.

 

VENEZUELA

The Moment of Truth…

 

The long wait is about to end, and strategies for both sides are being implemented. Edmundo González Urrutia and Nicolás Maduro have announced their decision to be sworn in as president of the republic on January 10. On one side, the regime, with much publicity, shows military and police preparations with the apparent objective of instilling fear in the population. They went to the extreme of publishing banners displayed at airports and streets, offering a reward of US$100,000 for the capture of President-elect Edmundo González Urrutia. Security forces have interrupted normal traffic flow to Caracas to prevent popular movements. Maduro's objective is to be sworn in at the regime's NA, an act that could be declared illegitimate by dozens of democratic countries.

 

The democratic opposition side, which continues to claim victory in the past elections, does not publicize its plans. On the contrary, it handles them with the strictest confidentiality. Only a communication from María Corina Machado addressed to the Venezuelan people, military, and police forces is known, indicating that the time has come to enforce the people's mandate in the 28J elections.

 

Edmundo González began his South American tour before January 10. On Saturday the 4th, he arrived in Argentina, where he was received at the Casa Rosada by President Milei and a concentration of Venezuelans who cheered him. Several possible scenarios have been proposed for his eventual swearing-in, but the strategy remains confidential.

 

Latin America, including countries with ambiguous positions, such as Brazil, Colombia, and Mexico, follow the events in great detail, as the outcome will profoundly affect their respective countries. In any event, the scenario where Maduro takes position and exercises usurped authority would have economic and political consequences that would make it difficult to sustain his position for an extended period.

 

In fact, the uncertainty that has existed since the denial of electoral results has rapidly derailed the country's macroeconomy. The shortage of foreign currency, apart from what oil companies invest, combined with the prevalence of low oil prices, has not allowed the regime to meet its budgetary obligations and maintain control over the official Bs./$ exchange rate. The gap with the parallel exchange rate remains high despite intense interventions. Annualized inflation for 2024 is estimated to be approaching 100% again.

 

The events of January 10 and afterward will define the economy's path based on the future of democracy in Venezuela.

 

Oil Operations

The year begins with hydrocarbon production, which is still impacted by the Muscar gas plant accident. The increase in natural gas flaring and venting, oil spills in Barinas, the Orinoco Belt, and northern Monagas, quality problems in exported crude specifications, and a persistent shortage of gasoline, diesel, gas, and gas liquids (propane and butane) are external signs of continuous deterioration.

 

Crude oil production for the first week of January averaged eight hundred and fifty-three thousand barrels per day (853 Mbpd). The regional distribution of production is shown below:

 

       REGION                       Mbpd

·      West                           204 (Chevron 91)

·      East                            130

·      Orinoco Belt               519 (Chevron 112)

·      TOTAL                        853 (Chevron 213)

 

Refining levels remained above 200,000 barrels per day (200 Mbpd) of crude and intermediate products, with a gasoline yield of 75 Mbpd and 70 Mbpd of diesel.

 

The domestic LPG cylinder market continues to be compromised following a leak in the 16" line transporting gas liquids between Jusepín and Jose.

 

Crude exports in the last month of the year averaged 560 Mbpd, somewhat lower than programmed. Exported segregations were Merey 366 Mbpd, Boscán 95 Mbpd, Hamaca 61 Mbpd, and DCO 38 Mbpd. Of these exports, 301 Mbpd were sent to the U.S. (240 Mbpd by Chevron and 61 Mbpd by Repsol), 162 Mbpd to China, 63 Mbpd to India, and 36 Mbpd to Cuba.

 

Despite the decline in the last month, the year's average exceeded the 2023 average thanks to incremental volumes placed under OFAC licenses, which have achieved modest increases since 2022.

GEOPOLITICS, OIL MARKET DYNAMICS AND A TURBULENT YEAR FOR VENEZUELA

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

This last delivery of the year is an opportune moment to take a retrospective look at the events that have marked its course. For most of these twelve months, geopolitical instability, generated by wars and economic sanctions, positively (rise) and negatively (fall) affected the perception of oil market actors, developing volatility that we have analyzed to try to understand the complex world of crude oil price formation. Despite hopes of an energy transition, hydrocarbons will remain essential to the global economic dynamic.

 

The prolonged war between Russia and Ukraine has become a war of attrition, exceeding 1000 days, this time not in trenches, but motorized and aerial. Ukrainian forces managed to occupy a small part of Russian territory in Kursk to stop the Russian advance in eastern Ukraine. They also achieved some success by attacking Russian oil installations far from the border, causing damage to 15% of Russian refineries, some fuel depots, and shipping ports. For its part, Russia opted to use a contingent of North Korean soldiers, further internationalizing the conflict. It began to use more sophisticated and powerful weaponry, sometimes even suggesting that greater involvement of NATO could force them to use nuclear warheads. Both sides have made drones a novel element of this bloody war.

 

The confrontation between Israel and Hamas, initially confined to the Gaza Strip, expanded as Iran and its proxies, Hezbollah and Houthi rebels, joined the conflict. The military success of the Israeli Defense Forces in that conflict has transformed the regional geopolitical dynamics, although it did not solve the underlying reasons. On the other hand, the fall of the Syrian dictatorship of Bashar al-Assad represents a serious setback for Russia, its presence in the Middle East, and its access to the Mediterranean Sea. Iran also lost the supply route to its proxies in Syria, Lebanon, and Gaza, which had already been diminished by more than a year of losses in their wars against Israel.

 

In sum, this year's war conflicts translated into higher transportation costs due to transit limitations through the Red Sea and the Suez Canal, a consequence of the continued attacks by Yemen's Houthis and changes in Russia's export patterns due to damage to its infrastructure. However, the oil and gas production capacity of the regions in conflict has not been significantly affected.

 

On the other half of the world, China has taken the opportunity to push what it sees as its legitimate territorial ambitions. Military deployments around Taiwan and in the Northern China Sea, probably to study the reactions of neighboring countries and international actors in general, are the spearhead of a situation that must be followed with attention.

 

The inauguration of the newly elected American president, Donald Trump, in January 2025 is a significant milestone for his country's internal politics and worldwide. The expectation of a trade war, with increases in tariffs and incentives for domestic investment, will impact economies and relationships with his neighbors and current commercial partners, Mexico and Canada, as well as with China, the BRICS countries, Europe and South America, without counting the potential effect of the much-touted mass deportation of immigrants.

 

From the perspective of industry fundamentals and oil markets, the threat of a global oil demand erosion, or at least its growth, has been the variable that most affected market agents' perceptions.

 

This continued fear is due to a combination of factors: a China with economic problems, until recently, the engine of energy demand growth, and the projections of a recession. The Asian giant's economy has not managed to react to stimuli introduced by the central government. Equally relevant has been the global inflation that erupted since mid-2021 as a product of the energy crisis and the post-pandemic rebound, which motivated restrictive monetary policies in different economies seeking to cool the economy without producing a recession, the so-called "soft landing." One of the collateral effects of this economic cooling is a less robust oil demand growth.

 

By the end of the year, inflation showed signs of responding to these policies, even generating recession in particular cases. Thus, central banks have begun to relax their policies, and we are heading toward a year with inflation under control and interest rates that will once again stimulate investment and, consequently, a more vigorous demand.

 

Week after week, we have tried to make sense of the crude oil price fluctuations as reactions to the most recent events and statistics. Nevertheless, analyzing the year retrospectively, we can conclude that it was a year where the market reacted cautiously, even to seemingly extreme news. The year began and seems to be ending with very similar oil prices. Throughout the year, prices moved within a narrow band of 15 dollars, lower than in previous years. The average cost of Brent crude was $80.7/barrel, a value close to what consumers and producers consider acceptable.

 

This price level is probably very close to what OPEC+ will try to maintain if there is understanding among other producers. At the same time, we are convinced that a price close to $80/barrel in Brent crude terms allows "Shale Oil" producers, the other "swing producers," to maintain their strategy of financial discipline with controlled growth.

 

Another element that characterized the year was the consistent divergence in oil demand and supply forecasts from institutions and analysts, the most relevant being the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC). The estimates of these two institutions do not coincide even in demand predictions for 2024, less than a month from closing, when reality should make them converge.

 

Before Closing the Year

 

In the second week of December, oil prices finally moved past the interpretative dichotomy resulting from the OPEC+ announcement of postponing dismantling its production closure strategy. The issue now occupying market anxieties focuses on the geopolitical repercussions of Trump's decisions regarding sanctions on Iranian and Venezuelan crude. Also, speculation continues about the ability to effectively implement the new sanctions by G7 countries on the Russian "dark fleet"; the market seems to interpret that both strategies have a high probability of increasing crude prices.

 

Geopolitics of the Moment

 

In Syria, confusion still reigns between celebrations and tears related to the release of prisoners from jails. Israel, fearing that the arsenal supplied by Iran to the Al-Assad regime to keep Hezbollah equipped might end up in the hands of insurgents, bombed military targets and missile warehouses on the outskirts of Damascus and is hurrying to take positions on the demilitarized border.

 

The future of Russian bases in Syria remains to be discovered. Russia has two military bases in Syria: The Tartus naval base on the Mediterranean coast and the Khmeimim air base near the port city of Latakia. These bases are considered among the Kremlin's most important military assets. Tartus is especially critical, as it provides Russia with only direct access to the Mediterranean Sea. According to the Russian official news agency TASS, Syrian rebel fighters have already taken total control of Latakia province, where both bases are located. Ukrainian military sources indicated that Russia is withdrawing from its Syrian bases, although Russia rules out that possibility.

 

The second censure motion against the president for declaring martial law in South Korea has triumphed. President Yoon Suk-yeol will be suspended from office, and Prime Minister Han Duck-soo will temporarily take his place. Koreans took to the streets to celebrate their president's removal, although the Constitutional Court still needs to decide his fate.

 

In Georgia, Mikheil Kavelashvili, a pro-Russian politician, was elected president by the Central Electoral College composed of deputies and local government representatives—the first time the president has not been elected by popular vote. The opposition has yet to recognize the results of the parliamentary vote held on October 26, and the acting president, Salome Zurabishvili, questioned the legitimacy of Parliament in choosing a new president to replace her. Street protests continue.

 

The US and Trinidad and Tobago signed military cooperation agreements. The agreements, which include the renewed Status of Forces Agreement (SOFA) and the Cross-Servicing Acquisition Agreement (ACSA), were signed on December 10 by National Security Minister Fitzgerald Hinds and US Department of Defense representatives. According to the US Embassy in Port of Spain, the new SOFA will allow greater interoperability between the armed forces of both countries, facilitating the exchange of resources, personnel, and logistical services.

 

Current Fundamentals

OPEC+ maintains relatively constant production that will average 40.5 MMbpd for the last quarter of the year and, according to announced agreements, will remain at that volume until April 2025. According to OPEC, global demand by the end of 2024 is 103.8 MMbpd, while the IEA reports 102.8 MMbpd, a difference in figures that is difficult to understand.

 

The US also maintains a constant production level (around thirteen million barrels per day), and weekly EIA reports indicate considerable growth during the year (around six hundred thousand barrels per day). Nevertheless, we insist that these amounts may result from arithmetic calculations adjusted by an empirical factor commonly revised retrospectively. Baker Hughes reports that the number of active drilling rigs remained constant last week. Commercial crude inventories fell by one million four hundred thousand barrels (1.4 MMbbls), while gasoline inventories increased by 5.1 MMbbls in the lower average range of the last 5 years.

 

India's Reliance signed a contract to purchase 500 Mbpd of Russian crude, almost one-eighth of India's daily imports. Unofficial sources indicated that the negotiated price is $4/bbl below the Brent price. The increase in Russian crude purchases is made at the expense of crude from Saudi Arabia and Venezuela. We'll see how this is managed in an environment of new sanctions on Russian oil.

 

After clashes between armed groups near the facility, Libya's state oil company declared force majeure at its 120,000 bpd Zawiya refinery today. The company said several storage tanks were damaged, causing fires, although these were later contained. Zawiya is Libya's largest operating refinery, with most of its output absorbed domestically. It runs on crude from Libya's El Sharara oil field, which Repsol runs.

 

Mexico's production continues to fall amid budgetary problems and the overwhelming debt of the state-owned oil company Pemex. November production is estimated at 1.3 MMbpd, almost 30% below the budgeted production.

 

Meanwhile, Argentina's production continues to grow from the activities of state-owned YPF and private companies. In November, the average production was estimated at 746 MBPD, primarily due to growth in the Vaca Muerta Basin.

 

Our supply and demand balance estimates indicate that current demand remains at 102.8 MMBPD and supply at 102.5 MMbpd.

 

Price Behavior

The market finally seems to have digested that OPEC+ would maintain its current production until the end of the first quarter. It perceives that instability in the Middle East and Eastern Europe represents a real threat to normal oil activities and, therefore, factors in a greater geopolitical risk. In parallel, the touted supply increase from other producers has begun to raise doubts, which has helped to strengthen prices during the last week.

 

So, at market close on Friday, December 13, Brent and WTI benchmark crudes were quoted at $74.49/bbl and $71.29/bbl, respectively. The week closed with a gain of around 4.7% compared to the previous week.

 

VENEZUELA

A Year of Political, Economic, and Emotional Ups and Downs

 

If international geopolitical uncertainty was the order of the day on the world stage, the public scene in Venezuela was no less dramatic. The surprising success of the opposition primaries in 2023, with María Corina Machado's victory, led to her disqualification and, after a bumpy route, to the nomination of Edmundo González Urrutia (EGU) as the presidential candidate.

 

On July 28, despite all the obstacles imposed by the regime during the electoral campaign and the process of voting and counting votes, the objective of winning the elections was impressively achieved, though not surprisingly. EGU won 70% of the votes. The regime's institutions then hijacked the process, and the National Electoral Council, or at least part of it, communicated partial results favoring Maduro and qualified them as irreversible, declaring Maduro as the contest's winner. The street protests in response to the perpetrated fraud led to violence and repression by the regime's security forces, causing more than two dozen deaths and over 2,000 detentions, including minors and teenagers.

 

However, in a well-planned and unexpected operation for the regime, the opposition managed to collect 83% of the original voting records, proving EGU's triumph by a wide margin. The only international observers, the Carter Center and UN experts, reached the same conclusions: the process reported by the CNE did not meet the requirements of a democratic process, and they supported the results of the vote tallies collected by the opposition.

 

The international reaction of democratic countries, faced with the evidence shown by the opposition, was not to recognize the results announced by the regime. Many countries have subsequently recognized Edmundo González as Venezuela's president-elect. Maduro and González maintain that they will be sworn in on January 10, 2025. For now, EGU's swearing-in seems more like a chimera, but things are happening at extreme speed.

 

Meanwhile, the regime continues trying to "normalize" the electoral fraud, using economic and political actors as lobbying agents, both internally and with the new American administration. In parallel, the security forces continue its strategy of repression of dissidents, which has been censured by several international.

 

The Economy a Weak Flank

 

Before the July 28 elections, the regime kept the official dollar anchored to reduce inflation, one of the significant concerns of the population, and increased public spending in the last months of the campaign in an extraordinary effort to distribute CLAP boxes (food packages) among its militants, associates, and those vulnerable to such treatment.

 

Today, after the elections, the shortage of foreign currency continues to unbalance the country's economic strategy, delegated to Delcy Rodríguez, vice president and energy minister. Oil revenues are not rising; the official Venezuelan basket price hovers around $35.6/bbl, while the theoretical price is $66/bbl – a result of discounts on crudes sent to Asia and for debt payments to Chevron on those sent to the US.

 

Public spending is being reduced, contributing to the economy's shrinking size and general consumption decline. A good part of the oil income leveraged by an amount used from international reserves has been directed to the intervention market to stop monetary devaluation. However, the official dollar is already approaching 50 Bs, and the parallel market is at 60 Bs.

 

As an example of the economic and legal insecurity facing the private industry, a product of political discretion, Diosdado Cabello, interior minister, denounced a "conspiracy" of judges, prosecutors, military personnel, and businessmen from Zulia State. The procedure resulted in the detention of at least seven people and the accusation against José Enrique Rincón, owner of Grupo Lamar, the main shrimp-producing and exporting company in Venezuela.

 

Petroleum Operations

 

Crude production has normalized in northern Monagas at the expense of burning additional quantities of associated natural gas that cannot be collected: today's figure exceeds two billion cubic feet per day (2000 MMcfd) flared or vented. To put the scale of this lost gas volume in context, the figure corresponds to the daily consumption of the rest of Venezuela and Colombia combined. The volume of natural gas reaching Jose and Margarita Island, the primary victims of the Muscar plant accident, is estimated to be between 250 and 300 MMcfd.

 

National crude production averaged eight hundred thirty-six thousand barrels per day (836 MBPD) this last week due to the reopening of wells in northern Monagas and some Orinoco Belt wells closed due to diluent scarcity.

 

The regional production distribution is as follows:

 

• West                                                       200 (Chevron 93) 

• East                                                        121

• Orinoco Belt                                            515 (Chevron 110)

• TOTAL                                                    836 (Chevron 213)

 

Refining levels reached 203 MBPD of crude and intermediate products, with a gasoline yield of 71 MBPD and 66 MBPD of diesel. The El Palito distillation tower started after a prolonged inactivity, producing naphtha sent to the PLC refinery to keep it operating since all light crude was dedicated to Orinoco Belt crude dilution.

 

The domestic market situation is severely compromised by gasoline and diesel shortages. Gas cylinders disappeared from the market, and "bachaqueros" (black market sellers) emerged with gas cylinders at exorbitant prices. Even in the capital city, buildings and houses dependent on large cylinders have not been able to be restocked. Meanwhile, sufficient gas is arriving in the Jose area in the eastern part of the country to maintain 75% of methanol production and a train of ammonia and urea.

 

Crude exports, year to date, averaged around 610 MBPD, slightly higher than in 2023. Exports for the last 13 days equate to a monthly average of 580 MBPD, but this number will be better defined as the month progresses.

 

OPEC+ STICKS TO ITS VOLUME STRATEGY

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

While the real oil industry faces daily complexities in supplying the more than 100 million barrels demanded worldwide, the oil market oscillates between fragility and firmness, chaos and precision.

 

Amidst the continuous avalanche of events and news, market perception is driven by the most significant event, at least in the short term, avoiding overload from excessive information. Last week, the announcement of a ceasefire between Israel and Hezbollah reinforced the perception of reduced geopolitical risk in the Middle East despite ongoing news from Syria. This week, the OPEC+ decision on production cuts, though anticipated, was the market's key factor. The oil market interpreted the postponement of production increases as evidence that demand, or at least its near-term growth, is threatened, fueling speculation along these lines.

 

Other significant developments, such as the precarious situation of Bashar al-Assad's dictatorship in Syria, the drop in crude oil inventories in the U.S., and increased fuel demand in India, were largely ignored by the oil market.

 

Geopolitics

Given the proliferation of global " hot spots, " it’s not far-fetched to suggest that “global warming,” often used in energy scenario analyses, is equally applicable to geopolitics.

In addition to the escalating confrontations between Russia and Ukraine and the conflict between Israel and Iranian-backed proxies in the Middle East, there’s now a potentially anarchic scenario in Syria. This comes alongside Chinese ambitions in the Far East, turmoil in South Korea, and political crises in France and Germany. These interconnected events arise amid a potentially disruptive change in the U.S. administration.

 

Just over a month before Donald Trump assumed office, discussions of potential peace agreements to end the Ukraine war and reduce Middle Eastern tensions emerged, voiced by Russian Foreign Minister Lavrov and Ukrainian President Zelensky.

 

Meanwhile, Syria’s long-dormant civil war has reignited over the past two weeks. The reduced Russian presence and Iran's weakening regional influence have emboldened Syrian dissidents, who have swiftly taken control of major cities, including Aleppo, Hama, Homs, and finally, Damascus, effectively ending over five decades of Assad family rule. Bashar al-Assad has fled the country, reportedly seeking asylum in Moscow, granted on “humanitarian grounds.”

 

The most prominent figure to emerge from this crisis is Abu Mohammad al-Golani, leader of HTS, a group with roots in Al-Nusra, formerly Al-Qaeda’s Syrian affiliate, though it now denies such ties. HTS’s offensive includes other opposition groups supported by Turkey.

Israel closely monitors these developments, preparing to adjust its border policies and adapt to the new power dynamics. Israeli Prime Minister Benjamin Netanyahu has announced the temporary occupation of a demilitarized buffer zone in the Golan Heights, declaring the 1974 agreement with Syria “collapsed” following the rebels’ takeover.

An Israeli spokesperson suggested the rebels appear rational, emphasizing continued governance of Syria’s needs until a formal transition plan is devised. Celebratory gunfire has been prohibited to maintain order.

This marks the end of a long and cruel era, reshaping the balance of power and regional alliances. Russia and Iran emerge as significant losers. However, no “good” geopolitical outcomes seem likely from this upheaval.

Meanwhile, a fragile ceasefire between Israel and Hezbollah is being tested by airstrikes and missile launches. The Israeli military has carried out operations against Hezbollah targets in Lebanon, retaliating against missile attacks near Mount Dov, a disputed area at the Lebanon-Syria-Israel intersection.

 

Other Geopolitical Developments

• President-elect Donald Trump has threatened 100% tariffs on BRICS nations if they move to create a currency independent of the U.S. dollar.
• Trump attended a ceremony alongside global dignitaries, using the opportunity to discuss Russia-Ukraine tensions and the Syrian conflict with Presidents Macron and Zelenskyy. Curiously, Trump appears to disregard the Logan Act, which prohibits unauthorized foreign diplomacy by private citizens.
• A vote of no confidence against the French prime minister weakens President Emmanuel Macron, while opposition leader Marine Le Pen gains strength.
• Protests demand President Yoon Suk-yeol’s resignation after his failed attempt to impose martial law.
• Georgia: Anti-Russian protests threaten the newly elected government, which has been accused of slow progress toward EU integration and pro-Putin stances.
• Romania: The Supreme Court annulled the presidential election amid allegations of Russian interference, restarting the entire process.
• China-Taiwan Conflict: Military drills near Taiwanese waters and provocations in Philippine waters maintain regional tensions.

 

Market Fundamentals

Efficient markets rely on reliable, timely, and transparent information. Divergent opinions on supply-demand balance stem from a need for such information. Data and projections from producers, consumers, and organizations like OPEC and IEA often reflect biased interests or omit critical details.

 

Building robust opinions requires analyzing available data and applying technical correlations and adjustments, culminating in informed predictions. For instance, in 2024, we estimate oil supply will fall 300,000 barrels per day short of demand, slightly below IEA’s demand growth forecast. By 2025, supply is unlikely to exceed demand even under OPEC+ production plans, leading to a modest inventory drawdown.

 

Our October calculations indicate that in 2024, 78 million barrels were drained from various terminals and storage centers globally while floating storage increased by approximately 62 million barrels. This resulted in a net inventory decline of about 16 million barrels. Based on the mentioned supply-demand balances, global crude inventories are projected to end the year at around 8 billion barrels. It is worth noting that inventory figures are the hardest to estimate accurately.

The obvious question is: why doesn’t the market price of crude reflect this analysis? The answer lies in the recurring perception that future demand might not be robust enough. This stems from concerns over China's economic weakness and the central government's inability to stimulate growth effectively, combined with potential advancements in energy transition, particularly electric vehicles.

On the supply side, part of the answer lies in the perception that the “Trump effect” could incentivize North American production. For instance, investment bank Goldman Sachs projects a global oil surplus of about 400,000 barrels per day next year. They argue that strong supply growth from non-OPEC+ countries offsets the group’s production cuts. However, our data does not support this “strong growth” cited by Goldman Sachs.

 

OPEC+ Announcement

This week, OPEC+, which produces around 40 million barrels per day (MMbpd), announced its widely expected decision to postpone planned supply increases for another quarter. The group has committed to rolling back production cuts from April 2025, with increases spread over 18 months until September 2026.

 

Contrary to expectations, this news did not boost prices as anticipated by the cartel. Instead, as with the previous postponement, prices fell, reflecting concerns that OPEC+ is worried about weak demand growth. Chinese oil imports remain below forecasts, although India helped narrow this gap in November.

 

U.S. and Global Developments

·       U.S. Production: Activity picked up as Baker Hughes reported an increase of seven rigs, primarily focused on natural gas to meet winter demand. U.S. commercial crude inventories fell by 5 million barrels, below the five-year range.

·       Employment Data: The Bureau of Labor Statistics reported 227,000 jobs created in November, surpassing expectations. Unemployment slightly rose to 4.2%.

Other Headlines

·       Colombia: Petrobras and Ecopetrol announced the “largest gas discovery in Colombia's history,” confirming more than 6 trillion cubic feet of original gas in place from the offshore Sirius-2 well.

·       Shell & Equinor: The companies will merge North Sea assets into a joint venture, creating the largest oil and gas company in the mature basin with a production of about 200,000 barrels of oil equivalent per day.

·       Hungary & Gazprombank: Hungary requested that the U.S. exempt Gazprombank from sanctions related to natural gas payments, citing potential negative impacts on U.S. allies.

 

Price Trends

Despite heightened geopolitical conflicts, including the fall of Bashar al-Assad and its repercussions, the market has not reacted significantly. As of Friday, December 6, Brent and WTI crude traded at $71.12/bbl and $67.20/bbl, respectively, down nearly 2.5% from the previous week. Prices began to rise slightly in response to the Syrian crisis.

 

 

Venezuela

Judicial Measures and Political Fallout
The week saw setbacks for the Venezuelan regime. The International Court of Justice prosecutor Karim Khan demanded measures to uphold human rights. Meanwhile, the UN Human Rights Committee ordered Venezuela to preserve all electoral materials from the controversial July presidential elections amid allegations of manipulation.

Despite these developments, the Maduro administration plans to proceed with the January 10 swearing-in ceremony, while opposition leader Edmundo González Urrutia announced his intent to be sworn in within Venezuela, discarding an exile option.

The regime is doubling down with new legal measures, including controversial laws to tighten control over NGOs and political dissidents. Economically, Vice President Delcy Rodríguez traveled to China to seek investments and lobby BRICS countries for Venezuela's inclusion.

 

Economic Situation
Venezuela's economy remains derailed by currency issues and declining revenues. The official exchange rate stood at 48.3 Bs./USD, while the parallel market reached 58 Bs./USD. Lower oil prices have nullified these gains despite slight increases in crude volumes exported.

 

Oil Operations

• Production: Weekly national crude production averaged 812 Mbpd, with regional distribution as follows:
• Western Venezuela: 200 Mbpd (93 Chevron)
• Eastern Venezuela: 130 Mbpd
• Orinoco Belt: 482 Mbpd (108 Chevron)
• Exports: Crude exports reached 590 Mbpd, with destinations including China (293 Mbpd), the U.S. (243 Mbpd), Europe (85 Mbpd), and India (66 Mbpd).

 

Operational challenges persist, including reduced refining capacity (196 Mbpd) and issues with natural gas supply in key regions. This turbulent period reflects Venezuela's ongoing struggle to stabilize its political and economic landscape.