The Curious Imperturbability of the Oil Market

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

 

In a week of mixed signals, the oil market remained volatile, though within a narrow range close to $105/BBL — relatively low given the supply crisis. Investors continue to weigh the inflationary impact of the conflict on demand, as well as the risk that tensions will persist and oil and natural gas shortages will worsen. A sharper-than-expected drawdown in U.S. inventories barely triggered a brief price rebound.

Among the factors at play during the week:

•       Reports of progress in negotiations with Iran, including announcements of talks with Oman to establish a “fair” toll system for transit through the Strait of Hormuz, were interpreted as a possible signal that the blockade might ease.

•       A deteriorating global macroeconomic environment, with Europe posting its worst figures since 2023, China cutting crude imports, and the International Energy Agency (IEA) warning that the market could enter a “red zone” between July and August.

•       Contingency measures adopted by several countries — including China, Japan, and the U.S. — through strategic reserves and fuel conservation programs have reduced demand by nearly 2 million barrels per day (2 MMbpd).

•       An increase in U.S. oil exports and early indications of efforts to ramp up domestic production.

Against this backdrop, OPEC has announced production increases that are more symbolic than effective and that, for now, do not substantially alter the market’s perception of scarcity and fragility.

On the geopolitical front, the Trump-Xi summit’s main takeaway was the possibility of an understanding to entrench a bipolar framework, with both powers consolidating their influence in their respective spheres and dissipating the clouds generated by the trade war. Where the Middle East falls in this arrangement remains to be seen. In this context, Trump’s statements on Taiwan point in that direction and could broaden the U.S.’s room for maneuver in scenarios such as those involving Venezuela and Cuba.

Geopolitical Fundamentals

The Iran–U.S. conflict, which was originally aimed at neutralizing Tehran’s threat to regional stability, has evolved into a stranglehold on oil and liquefied natural gas (LNG) supplies to the rest of the world. It is estimated that, to date, roughly 1 billion barrels of oil and approximately 800 trillion cubic feet of natural gas have been withdrawn from the global market.

In response to this supply deficit — and beyond alternative pipeline routes in the region — several countries have reinforced contingency measures:

•       Release of strategic reserves.

•       Increased exports, as in the case of the U.S.

•       Reducing dependence on Middle Eastern crude, as China and Japan are attempting to do.

•       Fuel conservation measures, primarily in Asia and Europe, have become a reality.

•       High energy prices have also reduced demand, despite its typical inelasticity.

•       U.S. operators appear to have decided to increase production and to pressure Venezuela to accelerate its sluggish opening to private capital.

All of these responses are warranted, as experience and even futures market behavior suggest that even a rapid resolution of the blockade would not fully unwind the consequences of the prolonged disruption until well into 2027.

Although President Trump suspended further strikes against Iran to create space for diplomacy, the absence of concrete agreements on Iranian uranium enrichment and the proposed Strait tolls continue to fuel caution and anxiety in global markets. Over the weekend, the U.S. president signaled that his negotiators should proceed carefully and not rush to a deal, dampening rumors that an agreement was imminent.  In any case, the oil market opened sharply lower on Monday, May 25.

The truth is that the original objective of the strikes on Iran — preventing Tehran’s regime from developing a nuclear weapon — has had an unintended consequence: Iran now understands that strategic control over the region’s energy supply may be an even more powerful weapon. This has reshuffled the balance of forces in unpredictable ways, upending the geopolitical chessboard.

Russia–Ukraine Conflict: Attacks on Energy Infrastructure

Global supply has also been affected by the ongoing Ukrainian drone strikes on Russian refineries, terminals, and storage facilities. The week witnessed one of the largest and most devastating long-range strike campaigns to date, bringing oil refining in central Russia to a near-complete halt and triggering severe fires at key export nodes. The affected facilities included:

•       Ryazan Refinery.

•       Kstovo Refinery (Lukoil).

•       Nizhegorodnefteorgsintez plant, in the Nizhny Novgorod region.

•       Syzran Refinery (Rosneft), in the Samara region.

•       Novorossiysk marine terminal.

On the final day of the week, Ukraine successfully struck the port of Novorossiysk and the Sheskharis terminal, Russia’s fifth-largest oil export hub. The success of these strikes is reshaping the relative assessment of the war.

For its part, on May 24, 2026, Russia launched a large-scale missile and drone attack on Kyiv, causing significant casualties and destruction. The assault is among the largest attacks on the city since the start of the full-scale war.

OPEC+: Symbolic Measures and Demand Destruction

As for OPEC+ actions, which have been relegated to the background for now, a group of seven of the alliance’s leading producer countries is expected to discuss a modest output increase in July to stabilize depleted inventories — a symbolic gesture with little real impact on supply balances.

More effective than the OPEC+ announcements has been demand destruction, concentrated in cuts to air transport — eliminating unprofitable routes and flight frequencies. High jet fuel prices have squeezed low-cost carriers. Prices have also spurred greater use of coal and, to a lesser extent, renewable energy, contributing to the temporary destruction of hydrocarbon demand.

U.S.: Production, Drilling, and Inventories

In the U.S., while crude production has remained relatively stable, early signs of a supply response are emerging in a high-price environment that could prove durable. Among these signals are growing interest in federal land lease offerings in shale oil basins and, in the near term, an uptick in drilling activity. According to Baker Hughes, 10 oil drilling rigs were activated in Texas basins during the past week, while 3 gas rigs were taken out of service, resulting in a net increase of 7 units. If this becomes a trend, it could translate into an increase of approximately 300 Mbpd by the end of 2026.

U.S. commercial crude inventories fell by nearly 8 MMBBLs; however, against a global drawdown of more than 70 MMBBLs, they have lost the significance they once held before the current crisis.

Cuba: An Emerging Geopolitical Factor

A geopolitical development that appears to foreshadow possible military or political action is the situation in Cuba, where the current conditions of economic quarantine and naval siege imposed by the U.S. have backed the island’s government into a corner. It should be noted, however, that Cuba’s political situation — after more than 60 years of dictatorship — differs markedly from Venezuela’s, which led to the arrest of Maduro and his wife.

Price Dynamics

Crude oil prices fell this week after Washington and Tehran signaled progress in their dialogue. Additionally, Iran’s overtures to Oman to implement a toll system in the Strait of Hormuz — which Iranian officials described as fair and justified by the guidance and protection services both countries provide — were interpreted as an olive branch and prevented prices from escalating in line with global inventory levels. Most maritime experts consider such an arrangement contrary to international law.

At the close of the week:

Crude	Price (USD/BBL)
Brent	$103,54
WTI	$96,60

A decline of more than 5% compared to the previous week’s close.

Venezuela

Plenty of Currency and Activity, but the Population Feels None of It

The Paradoxical Metamorphosis of the Regime

The metamorphosis of the Chavista regime from “revolutionary” government to an instrument of Washington’s decisions is a paradox that only the distance of history can explain. The current policy and economic framework of Venezuela’s interim government is marked by intensified U.S. guardianship and oversight.

Following the news is sufficient to find evidence of this 21st-century form of vassalage: the comments by Energy Secretary Chris Wright about the absence of a functioning banking system that must be resolved to achieve recovery; the direct involvement in managing the opening of the oil sector to private capital through the tool of licenses and pressure on potential investors; and the unusual military drill around the U.S. Embassy in Caracas, which included overflights by American military aircraft — all of which illustrate the erosion of the much-vaunted sovereignty of recent years.

This set of events generated a range of commentary, most notably the topic most discussed in financial circles: the possibility of dollarization as a solution to the “absence of a functional banking system.” There were also predictions that the U.S. military drill could foreshadow another extraction operation, similar to the one on January 3.

ExxonMobil, ConocoPhillips, and the Oil Sector Opening

The announcement that ExxonMobil is reportedly close to confirming its participation in at least six oil fields in Venezuela — four months after dismissing the country as an unattractive investment destination — tends to support the theory that the Trump administration is mounting pressure on the oil sector. Meanwhile, ConocoPhillips has stated that much still needs to change before Venezuela becomes an attractive place to invest.

Release of Political Prisoners

After Trump announced that all political prisoners would be released, Jorge Rodríguez communicated the release of 300 of them. Although only about forty of this large number have been independently verified, the step is significant: among those freed were metropolitan police officers, emblematic prisoners of the revolution, and part of the false Chavista narrative about responsibility for the violent events of the historic April 11, 2002 coup. These officers had been imprisoned for more than 20 years.

The Alex Saab Case

In a deeply Orwellian move, former minister Alex Saab was deported to the U.S. because he was a Colombian citizen with legal troubles. This claim contradicts the entire narrative of recent years, according to which Saab was not only Venezuelan but also a diplomatic representative of Nicolás Maduro. This is yet further evidence that Delcy Rodríguez’s political position now aligns with Washington’s wishes to the point of rewriting her own history.

Saab arrived in Miami under federal custody to face criminal charges, while the Venezuelan parliament simultaneously asserted that the businessman had maintained secret ties with U.S. intelligence agencies since 2019. It was also reported that the dismissed attorney general, Tarek William Saab, is being held at Fort Tiuna.

María Corina Machado and the Democratic Transition

Venezuelan opposition leader María Corina Machado (MCM) led a large-scale gathering with the Venezuelan diaspora in Panama City on Saturday, May 23, 2026. During the event, Machado reaffirmed her commitment to democratic restoration and officially announced her candidacy for president in the upcoming free elections outlined in the transition roadmap.

Perhaps the most significant aspect of her visit to Panama was the meeting with the Unitary Platform (PUD), represented in person by political leaders freed from persecution, such as Biagio Pilieri and Delsa Solórzano, and the participation via videoconference of President-elect Edmundo González Urrutia.

MCM and her new alliances will need to define how they respond to the redesign now underway in Venezuela’s economy and politics — a landscape that bears little resemblance to the situation in 2023–2024. Oil is perhaps the sector undergoing the most significant changes.

Meanwhile, in Caracas, various student groups, professional associations, and labor unions have called for protests demanding a clear presidential electoral timetable, changes to the economic conditions eroding the wages of public employees and workers in general, and improvements to public services.

Economic Situation

The economic situation continues to be marked by uncoordinated measures to manage the sharp growth in public spending, interventions in the foreign exchange market, liquidity restrictions, and the arbitrary setting of the official exchange rate, which is increasingly diverging from the intervention rate. The result has been a renewed widening of the gap between the official and parallel exchange rates, along with intensifying inflationary pressures.

Houston Forum and Oil Sector Opening

On the oil side, May’s foreign currency revenues are shaping up to be similar to April's. Meanwhile, promotional activities for the new oil sector opening are intensifying. Oil Minister Paula Henao and PDVSA Vice President Jovanny Martínez attended a technical event in Houston on investment opportunities in Venezuela — the first time in many years that “red” PDVSA personnel shared the same venue with “blue” PDVSA technicians without the former vetoing the latter.

In addition to a variety of technical presentations at this important forum, representatives of the interim government met with numerous groups interested in participating in the reactivation of Venezuela’s hydrocarbon sector. Investors were briefed on the procedures required to take part in the process. Representatives of the Department of Energy accompanied the proceedings.

Our analysis concludes that, to be effective, this process must fulfill several steps that are not yet fully defined. For example, the review and modification of the LOH Regulations, followed by complex negotiations over the model contracts currently circulating. Another element that has slowed the process is the lack of data — or the difficulty in locating it — which impedes the due diligence that every investor must conduct.

Based on these factors — not to mention the need to resolve the LOH challenge pending before the Supreme Court (TSJ) — we estimate that production growth over the coming years will be slower than projected by both the interim government and U.S. sources. Our updated forecast is shown in the attached charts, covering both total production and incremental activity.

Oil Operations

During the week, operations — including Chevron’s production in the Orinoco Oil Belt — were affected by recurring power outages and by an accident at the Lamargas plant in western Venezuela the previous Friday. It was also confirmed that China Concord Resources Corp., which had signed one of the first CPP agreements for that block, was not operating in the area, and that the Lago V block remained under PDVSA control.

Weekly Production

This week’s production stood at 906 Mbpd:

Region	Production (Mbpd)
West	249
East	110
Orinoco Belt	547
TOTAL	906

 

Companies under OFAC Licenses and New Contracts (LOH)

Company	Production (Mbpd)
Chevron	249
Repsol	50
M & P	32

 

Refineries and Petrochemicals

National refineries processed 248 Mbpd of crude and intermediate products, yielding 75 Mbpd of gasoline and 77 Mbpd of diesel.

The Petrochemical Complex at José is operating normally, though with limited natural gas availability. Daily production stands at 5,900 metric tons (mt) of methanol, 2,600 mt of ammonia, and 3,500 mt of urea. The Morón Complex remains shut down, awaiting gas. The El Tablazo Complex is completely idle, as the only plant operating — the Chloro-Soda facility — is currently undergoing maintenance.

Exports and Basket Price

Crude oil dispatches in the first half of May are consistent with exports of 750 Mbpd.

The Venezuelan crude basket averaged $87.2 per BBL.

 

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

 

Trump and Xi: A High-Profile Summit With Meager Results

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

The long-awaited summit between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing — the first since the American returned to office — concluded without offering tangible solutions or bridging the gap on the issues dividing the two superpowers. The permanent reopening of Middle Eastern sea lanes, tariffs, rare earths, and above all, the future of Taiwan yielded no significant announcements following the meeting.

China, predictably, reiterated its support for the full reopening of the Strait of Hormuz and for freedom of navigation through that strategic corridor. Beijing also categorically rejected the militarization of the passage and any attempt to impose tolls. That stance, however, does not appear to have been sufficient to alter Iran’s decision to keep the strait restricted.

Exceptions to the blockade have so far been limited, focused primarily on the export of Iranian and Iraqi crude to Asian markets and a handful of liquefied natural gas (LNG) cargoes from Qatar sailing in “dark mode” (transponders off) to avoid seizure or attack. Reports suggest that the stalled diplomatic process is pushing Trump to decide over the weekend on a military action against Iran.

Global petroleum product supply is further strained by persistent Ukrainian drone strikes against Russian refining centers, which are affecting processing capacity and inventories. Additionally, the U.S. Treasury General License for Russian oil cargoes expires on May 16, threatening to displace significant volumes of supply from the Asian market. This was almost certainly one of the topics addressed at the Trump–Xi summit.

In an unusual convergence, both the International Energy Agency (IEA) and OPEC are forecasting a serious supply deficit despite demand reductions for the remainder of the year, resulting in an inventory drawdown of nearly 10%, to 97 days of supply.

Geopolitical Fundamentals

Enormous expectations surrounded the summit between the two superpowers. Donald Trump’s visit to Beijing to meet with Xi Jinping ended on a positive personal and diplomatic note, but without major tangible economic agreements or critical geopolitical breakthroughs. Although both leaders staged a display of harmony in the gardens of Zhongnanhai, financial markets reacted negatively to the absence of concrete resolutions. On Friday the 15th, the Dow Jones index fell more than 500 points.

Efforts centered on finding a political formula that would allow for stability and prevent open conflict. Xi Jinping summed up China’s position with the phrase: “We should be partners, not rivals.” Analysts took note of Xi’s expression of hope that both nations could avoid falling into the “Thucydides Trap.” It is not the first time the Chinese leader has invoked the tensions that led to war between Sparta and Athens in ancient Greece.

Trump, for his part, appeared less combative than usual, and his subsequent statements raised some alarm in Taipei regarding the firmness of America’s commitment to Taiwan’s independence. Trump also announced that China pledged to purchase 200 Boeing aircraft, renew import licenses for U.S. beef, and increase agricultural purchases. Xi Jinping accepted Trump’s invitation to visit the White House on September 24.

No progress was made on the sale of artificial-intelligence chips or on agreements on key rare-earth supply chains. We therefore conclude that the meeting served to ease bilateral tensions in the short term while leaving the underlying issues of the trade and geopolitical war largely intact.

The Strait of Hormuz

Although maritime shipping analysis firms reported a slight uptick in Hormuz transits — to approximately 10 vessels per day — the strait remains technically closed to the bulk of commercial traffic.

During the final days of the week, however, several large tankers successfully navigated the Strait of Hormuz using designated routes, aided by a temporarily brokered ceasefire. Among the most significant vessels were:

•       The Yuan Hua Hu, a Chinese VLCC (very large crude carrier) operated by COSCO Shipping, is carrying 2 MMBBLs of Iraqi crude bound for Asia.

•       The Eneos Endeavor is a Japanese supertanker that transports crude oil from various Gulf countries to Japanese refineries.

•       The Agios Fanourios, a Malta-flagged tanker, successfully delivered its cargo to Vietnam.

High-level peace negotiations between the U.S. and Iran, held in Pakistan, stalled once again. The U.S. extended its ultimatum threatening Iran’s core infrastructure, while Tehran hardened its stance through a maritime “blockade diplomacy” strategy. Trump’s declaration that “his patience is running out” and Iran’s response — that it was prepared to resume combat — closed the week at maximum friction.

Global Oil Market: IEA Analysis

A detailed analysis based on the latest IEA Oil Market Report, published on May 13, reveals the severity of the current supply crisis. According to the IEA, the global market will experience a severe supply shortfall lasting at least until October 2026. The report also notes that the reduction in crude supply drove a global inventory drawdown of 6 million barrels per day (6 MMbpd) in April.

In the United States, commercial crude inventories recorded a weekly decline of 4.3 million barrels, twice the market’s expectation. As a consequence of crude and product shortages in some regions and elevated prices, the IEA projects that global oil demand will contract in 2026 to 104 MMbpd, 1.3 MMbpd below the pre-war forecast. The steepest decline is observed in the second quarter of 2026, with a drop of 2.45 MMbpd, of which OECD countries account for 930 Mbpd and non-OECD countries for 1.5 MMbpd. The petrochemical and aviation sectors are currently the most affected, but higher prices, a weaker economic environment, and demand-saving measures will have an increasingly significant impact on fuel consumption.

OPEC Production and the Middle East

OPEC crude oil production has plummeted by more than 30%, equivalent to a massive decline of 9.7 million barrels per day (bpd). This historic collapse is a direct consequence of the effective closure of the Strait of Hormuz and the UAE’s withdrawal from the cartel, effective May 1. Saudi Arabia officially reported to the organization that its pumping levels have fallen to lows not seen since 1990.

The maritime blockade has forced the region’s major producers to implement large-scale shutdowns due to a lack of storage capacity and blocked transit routes. Production data highlights severe losses:

•       Kuwait: fell from 2.58 MMbpd in February to just 600 Mbpd in early May.

•       Iraq: production dropped from 4.18 MMbpd to 1.38 MMbpd.

•       Saudi Arabia: reduced by 3.3 MMbpd.

•       Iran: also affected by the U.S. blockade in the Gulf of Oman, with a reduction of approximately 15% in its production.

The UAE announced that it has accelerated construction of the “West–East” pipeline project to connect its crude oil fields to the port of Fujairah on the Gulf of Oman, in line with its recent withdrawal from OPEC. The pipeline, expected to begin operating in 2027, will allow the country to double its export capacity and bypass the Strait of Hormuz.

Russia–Ukraine Conflict

Following the expiration of the three-day truce in the Russia–Ukraine conflict, Russia resumed attacks on civilian infrastructure in Kyiv. However, Putin formally stated that the war in Ukraine “is approaching its end.” His remarks came on Saturday, May 9, 2026, at a press conference following the traditional Victory Day parade in Moscow. International analysts and intelligence reports suggest that Putin’s words reflect military and economic exhaustion, domestic popular discontent, and international pressure, including economic sanctions.

Meanwhile, the Ukrainian military continues its strategy of targeting Russian energy infrastructure. This week confirmed a massive drone attack on the Ryazan oil refinery, one of the largest crude processing facilities in the Russian Federation. The refinery suffered secondary explosions and a major fire. With a capacity of 360 Mbpd and located near Moscow, its damage means that approximately 17% of Russia’s refining capacity is now affected by the strikes.

United States: Production and Exports

The United States posted a slight increase in production, according to EIA statistics, while active rigs rose by 3 units. The increase in shale oil basins was 5 units, partly offset by a reduction in activity in natural gas basins. Crude exports also rose, exceeding 6.4 million barrels per day in May, perhaps the beginning of an effort to capitalize on the high-price environment.

Oil Prices

Global energy prices came under significant upward pressure, with oil posting a substantial rally of 8%-10%, while natural gas advanced at a moderate but steady pace, flirting with $3 per MMBtu in the U.S. market and reaching five-week highs in Europe.

Reduced LNG volumes on the market, rising oil and gas prices, weather forecasts predicting rising temperatures, and the substitution of oil with gas in some regions have driven the rise in natural gas prices.

At market close on Friday, May 15, 2026:

Crude	Price (USD/BBL)
Brent	$109.26
WTI	$105.42

 

Venezuela

Much Announcement, Little Confidence

External Debt Restructuring

Perhaps the most notable economic and political development of the past week is the announcement of the external debt restructuring process. Under the framework of General License 58, Venezuela’s interim government officially designated U.S. firm Centerview Partners as its financial advisor. In the normal course of events for a country, this measure would mark the beginning of a formal, comprehensive, and unified process to address total financial liabilities estimated at between $160 and $200 billion.

According to the authorities, the plan jointly encompasses the Republic’s financial obligations, PDVSA's bonds, and arbitration awards. The interim government indicated that it will present the international financial community with a macroeconomic framework and a debt sustainability analysis in June 2026. However, economists with expertise in the area believe the announcement is premature and lacks credibility, and fear it could lead to a process as complex as Greece’s, which began in 2010 and only concluded in 2018 after several confrontations with the financial community.

Oil Opening and the Hydrocarbons Law

Related to the oil opening intended to underpin the second phase of the Trump–Rubio plan, “the recovery,” a draft regulation began circulating on social media — one that might be expected to complement and clarify interpretive ambiguities arising from the recently approved Hydrocarbons Law (LOH). At first glance, the regulation, far from achieving that goal, raises additional questions and further expands the discretionary authority already identified in the LOH. The text will require thorough revision to achieve the objective of attracting investors beyond the fragile initial rush.

A draft contract for those interested in investing in Venezuela’s oil industry also began to circulate. We have not yet had access to this document, but representatives of oil companies indicated that, based on the original text, negotiations could prove more complex than previously projected.

If any proof were needed that the LOH was approved without adequate debate and the necessary political consensus, a group of citizens representing the hard-line wing of the PSUV and its associates filed a petition before the TSJ (Supreme Court) seeking the annulment of the LOH on grounds of unconstitutionality. The ink on Extraordinary Official Gazette No. 6,978 had barely dried when the atavistic statist myths resurfaced: a renewed source of concern for potential participants in this opening, and further evidence that without elections conferring a mandate, any reform will remain vulnerable.

Political Transition: Diverging Visions

As the country attempts to complement or correct the mechanisms intended to attract foreign and domestic private investment to increase oil and gas production — as part of the U.S. recovery strategy — the desired political transition (the third stage of the Rubio plan) divides the visions of the Trump administration and the Venezuelan opposition.

Chris Wright, Secretary of Energy and de facto bearer of the official U.S. position, indicated that it is important to have the economy recover before holding general elections, in order to avoid the early wear on a newly and democratically elected government. In contrast, opposition representatives led by María Corina Machado and other leaders argue that economic recovery can only be achieved after the political transition, since the large investments required will only arrive in a stable Venezuela with institutions, separation of powers, and guarantees of respect for laws, contracts, and agreements.

Internal Tensions

Serious divisions among factions are evident within both the interim government and the ruling party. On one front, internal accusations of treason against Maduro and his wife are being debated; the recent extradition to the United States of Colombian-Venezuelan Alex Saab adds fuel to those rumors. On another, what is perceived as an effort to eliminate retroactivity and other provisions of the Labor Law has met with strong opposition from those who view it as Chávez’s final legacy and insist it must not be changed.

Adding to this internal discontent are rising street temperatures, a population increasingly affected by inflation and inadequate income adjustments, the continued failure to release political prisoners, mounting evidence of human rights violations against prisoners and the disappeared, and the ongoing use of repression to control protests.

Economic Situation

On the economic front, May differs little from April: high public spending to generate liquidity in the foreign exchange market, offset by the sustained imposition of high bank reserve requirements. The slide of the official exchange rate has slowed, and as a result the exchange rate gap has returned above 30%. At the close of the week, the official rate stood at Bs. 515/$.

Oil Operations

Accident at the Lamargas Plant (Lama)

On Friday, May 15, 2026, a powerful explosion followed by a fire occurred at the Lamargas (Lama) gas plant, a facility located in Lake Maracaibo in Zulia state. The plant, situated in Block 5, is operated by China Concord Resources Corp. under a CPP signed within the framework of the Anti-Blockade Law. At least six workers were reported injured with burns of varying severity. The block was producing only 8,000 barrels per day; the impact on production could be material, as the plant supplied the gas lift gas for the area. The affected volume will be known next week.

This operator had previously experienced another accident when the jacking base of the self-elevating drilling rig they brought into the country caused the rupture of a sub-lake flowline, resulting in a spill and the shutdown of production.

Weekly Production

Electrical problems have continued to affect oil operations, offsetting gains achieved through drilling efforts and the reduction of deferred production. This week’s output stood at 912 Mbpd:

Region	Production (Mbpd)
Western Venezuela	253
Eastern Venezuela	108
Orinoco Oil Belt	551
TOTAL	912

 

Companies under OFAC licenses and new contracts (LOH)

Company	Production (Mbpd)
Chevron	252
Repsol	50
M & P	33

 

Mixed companies with Chinese, Russian, and independent partners (Orinoco Belt)

Company	Production (Mbpd)
PetroSinovensa	90
PetroMonagas	90
PetroCedeño	66
PetroRoraima	35

 

Refineries and Petrochemicals

National refineries processed 252 Mbpd of crude oil and intermediate products, yielding 76 Mbpd of gasoline and 77 Mbpd of diesel.

The Petrochemical Complex at José is operating normally, albeit with limitations in natural gas availability. Daily output stands at 5,900 metric tons of methanol, 2,600 metric tons of ammonia, and 3,500 metric tons of urea. The Morón Complex remains shut down, awaiting gas supply.

Exports and Basket Price

Crude shipments during the first half of May are consistent with export levels of 750 Mbpd.

The Venezuelan crude basket averaged $85.9/BBL.

 

¹ International Analyst

² Nonresident Fellow, Baker Institute

 

CHAIN CRISIS: FROM HORMUZ TO GLOBAL MARKETS

El Taladro Azul

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

Published  Originally in Spanish in  LA GRAN ALDEA 

As diplomatic exchanges to restore free navigation through the Strait of Hormuz continue, the fragile ceasefire holds despite ongoing skirmishes between Iran and the United States. In response, energy markets are reacting with elevated and volatile prices amid contradictory — and at times exaggerated — messaging from Tehran and Washington. Crude oil prices posted a significant rebound following several dangerous naval confrontations in the Gulf of Oman, reversing the recent downward trend.

The effects of the current hydrocarbon supply crisis are intensifying, affecting everything from the fiscal positions of energy-import-dependent countries to physical shortages of key inputs for economic activity across Asia and Europe. OPEC is also in crisis, with the departure of one of its most significant members — the United Arab Emirates (UAE) — and production constraints stemming from the closure of the strait.

The cartel’s output has fallen sharply and is estimated to drop below 20 MMBPD in May. Even so, at its most recent virtual meeting, OPEC+ announced a production increase of 188,000 barrels per day starting in June. This gesture is more symbolic than effective while transport restrictions persist and a return to normalcy remains slow. Saudi Arabia alone would need to raise output from under 8 MMBPD to more than 10 MMBPD.

The situation is beginning to show up in inventories. Before the war began, global petroleum stocks stood at 106 days of supply; that figure has since fallen to 99 days and is projected to shrink further to 95 days. These are, of course, global averages, and the impact of reduced supply is being felt very differently across regions.

This elevated hydrocarbon price environment is weighing on the global economy by fueling inflation. When inflation persists, central banks face a dilemma: raising interest rates risks contracting the economy without addressing the underlying cause, while cutting them risks stoking further inflation. Ultimately, economies will likely contract, and demand destruction will begin to set in.

The situation at the Federal Reserve (Fed) is further complicated by Jerome Powell’s term as Chair expiring on May 15. Kevin Warsh, Trump’s nominee for the position, received approval from the Senate Banking Committee on April 29, and his full Senate confirmation vote is expected next week — paving the way for him to assume the chairmanship before the end of the month.

On the other active front, Russia and Ukraine have agreed to a three-day ceasefire running from Saturday, May 9, through Monday, May 11, 2026, which includes the release of 1,000 prisoners of war by each side. The truce, brokered by President Trump, coincides with Victory Day celebrations in Russia. Russian presidential adviser Yuri Ushakov confirmed acceptance of the diplomatic proposal, while President Zelensky expressed gratitude for U.S. involvement.

Trump is looking to arrive at his upcoming meeting with Chinese President Xi Jinping in China with as few open fronts as possible, particularly regarding the impact of oil supply on China. Yet, given the way the winds are blowing, oil supply to China is bound to be a major item on the agenda.

Geopolitical Foundations

The United States has put forward a proposal to end the conflict, pressing Iran to choose between diplomacy and confrontation. Washington is weighing and negotiating the details of a peace plan that reportedly addresses both Iran’s nuclear program and the permanent reopening of the Strait of Hormuz, as well as the U.S. naval blockade in the Gulf of Oman. Meanwhile, in the daily back-and-forth, the Pentagon reported that three U.S. Navy destroyers were attacked by Iranian drones, missiles, and fast boats while escorting merchant vessels under “Operation Freedom.” The U.S. response was swift, carrying out intensive strikes against Iranian military installations. Tehran, in turn, accused Washington of attacking an Iranian tanker and hitting military facilities on Qeshm Island. It is, without question, a ceasefire hanging by a thread.

In any case, last Sunday, President Trump flatly rejected Iran’s response to his proposal, calling it “totally unacceptable.”

China’s Foreign Ministry described the insecurity in the strait as “unacceptable,” after a tanker with a Chinese crew was caught up in the conflict. The Revolutionary Guard’s actions appear to lack coordination; in a remarkable turn of events, Iran seized the Ocean Koi in the Gulf of Oman — a sanctioned tanker operating on Iran’s behalf and carrying Iranian crude.

As all of this unfolds on the diplomatic and military fronts, the strait remains blocked, and the U.S. naval blockade in the Gulf of Oman has effectively paralyzed Iran’s ports, including the strategic terminal at Jask, severely hampering Iran’s oil exports. In a chaotic and costly workaround, hundreds of Iranian oil tanker trucks are making their way overland to Pakistan as a pressure valve to prevent production fields from being shut in.

Other oil executives have also warned of crude shortages, which the International Energy Agency (IEA) has described as the largest supply disruption in history. A return to normal will not come until several months after maritime traffic through the Persian Gulf normalizes; for liquefied natural gas (LNG), the recovery will be considerably slower.

OPEC+ Production

OPEC oil production fell to 20.55 MMBPD in April 2026, its lowest level since 1990. This decline, as revealed by a Bloomberg survey, reflects an additional 420,000 barrels per day from the prior month. Significant output reductions were recorded in Kuwait, Iran, Iraq, and Saudi Arabia. Beginning in May, UAE production will no longer be included in OPEC or OPEC+ reporting.

Seven OPEC+ countries will raise their production targets by 188,000 BPD in June, marking the third consecutive monthly increase, according to an OPEC+ statement following a virtual meeting. The increase mirrors the one agreed for May, except for the UAE’s quota, as that country left the group on May 1. The move is intended to signal the group’s willingness to boost supply once the war ends. It indicates that OPEC+ is pressing ahead with a “business as usual” approach despite the UAE’s departure.

Saudi Arabia’s quota, as OPEC+’s largest producer, will rise to 10.291 MMBPD in June under the agreement — well above actual production levels. The kingdom reported current output to OPEC of 7.76 MMbpd. Even once maritime traffic through the Strait of Hormuz resumes, it will take several months for flows to normalize, according to Gulf petroleum executives and international operators.

Confirming our estimates of the crude supplies that have failed to reach the market, Shell CEO Wael Sawan warned: “We have gotten ourselves into a mess with a deficit of almost a billion barrels of crude right now, whether blocked barrels or unproduced barrels, and that mess is getting worse every day,” he said on an earnings call. “The recovery will be long,” Sawan noted that the situation has led to approximately a 5% drop in demand from the aviation sector.

Europe and the Ukraine Conflict

On other fronts, the Kyiv-Moscow truce raised expectations from Trump, who hoped it would be the “beginning of the end” of the war. Long-term peace negotiations remain stalled over territorial disputes in the Donetsk region. Additionally, outlets such as Euronews noted that in practice the agreement mainly ensured that Ukraine would refrain from striking Moscow during the military parade in Red Square commemorating the Soviet victory over Nazi Germany.

These protracted wars in Eastern Europe and the Middle East have tested the loyalties of the various actors involved. It is clear that Europe fears Trump’s unpredictability and his willingness to act decisively; NATO and European authorities are therefore attempting to regroup and build an independent power base. Their precarious economic situation, internal political divisions, and lack of military readiness can only succeed if Russia’s economic and military decline continues.

The military and commercial cooperation between the UAE and Israel — demonstrated by the Emiratis’ defense against Iranian attacks — sends a clear signal that the Abraham Accords are working and represent a trend that could contribute to regional stability.

Production in Other Regions

Incremental oil supplies from other producing regions have been modest or nonexistent. Brazil alone has reported a significant increase in hydrocarbon output so far this year, with production rising by approximately 400,000 barrels per day (MBpd) to 4.2 MMbpd — a record for the South American country. Norway, for its part, has brought a couple of natural gas fields back online, helping to offset the deterioration in Europe’s gas balance caused by the shortage of Qatari gas. The United States and Canada have kept production levels steady, along with their capacity-building activities through drilling and hydraulic fracturing.

At present, most oil producers are unwilling to invest their elevated revenues in new drilling activity. As of late April, fewer rigs were drilling wells in the United States than when the war began, according to energy services firm Baker Hughes. And while U.S. oil production has grown significantly in recent years, domestic output could fall in 2026, according to the Department of Energy (DOE).

On the European geopolitical front, Hungary’s new Prime Minister, Peter Magyar, was sworn in, and closer cooperation within the European Union (EU) is expected under his leadership compared to his predecessor. In Romania, the collapse of the government following the rejection of a coalition between the far right and social democrats has opened a new front of instability on NATO’s and the EU’s eastern flank. Countries such as the Baltic Republics and Poland are approaching an unprecedented level of defense spending — close to 5% of GDP in 2026 — a commitment demanded by NATO that few EU members are meeting.

Price Dynamics

The conflict between the United States and Iran has kept global oil markets in a state of constant instability. Brent crude reached a high of $126.41 per barrel on April 30, and while prices have since moderated to around $104 per barrel today, the underlying risk of missile and drone attacks has not gone away.

Meanwhile, the U.S. Commodity Futures Trading Commission (CFTC) announced it will investigate posts made by President Trump on his Truth Social platform.

According to reports, the CFTC has opened an investigation into unusual activity in the oil market ahead of Trump’s recent social media posts, raising concerns about possible leaks of market-sensitive information or coordinated trading. An analysis by Reuters found that total bets — including those on Brent, WTI, European diesel, and U.S. gasoline futures — amounted to $7 billion. According to the analysis, these large-scale positions were executed in significant blocks over four specific days, often 15 to 20 minutes before announcements that triggered double-digit drops in oil prices.

The investigation is still in its early stages, and no individual or company has been officially named.

As of the market close on Friday, May 8, 2026, benchmark Brent and WTI crudes were trading at $101.29/BBL and $95.42/BBL, respectively, representing a decline of more than 6.4% compared to the prior week’s close.

VENEZUELA

You Can’t Teach an Old Parrot New Tricks

The geopolitical landscape and economic situation in the country remain uncertain. Attempts are being made to combine a forced opening to global markets with severe economic adjustments to curb domestic inflation. Opinions on the progress of the U.S. strategy in Venezuela are divided. While the Trump administration appears satisfied with what has been achieved so far, the interim government seems inclined to carry out its “tutelage” mandates in a manner that reflects Venezuela’s well-known playbook of “changing everything so that nothing really changes” — buying time in the process, whether to hold onto power or to reach elections from a position of advantage.

Economic Situation

On the economic front, the unprecedented surge in oil revenues has exposed a disconnect in the decisions made by Venezuela’s Central Bank (BCV) regarding the banking and financial system. Despite the greater flow of foreign currency, controlling the exchange market has become difficult in an environment of very high public spending and excessive reserve requirements used as liquidity management tools. The result is rising prices throughout the economy — including in dollar terms — and inflation that is eroding the modest wage adjustment approved to begin in May 2026. The pace of adjustment in the official exchange rate slowed, keeping the gap with the parallel rate at around 30%. At week’s close, the official rate stood at 500 Bs./$. In short, a familiar story.

The interim government has also formalized its return to the International Monetary Fund (IMF) and the World Bank, restoring Venezuela’s formal membership and access to financing after years of suspension. Engineer Calixto Ortega Sánchez was appointed as Venezuela’s governor to the IMF.

U.S. Secretary of Energy Chris Wright stated on May 8 that free elections in Venezuela depend on a stabilized economy, outlining a two-phase roadmap in which institutional reconstruction is the current priority. At the same time, drawing on assessments from American experts, he concluded that “Venezuela does not have a functioning banking system.” In his view, the absence of a functional financial structure is the primary obstacle to recovery. It remains unclear whether this reflects the White House’s position or simply a personal opinion expressed by one official.

Venezuelan sovereign bonds have also seen a significant rally following OFAC’s authorization for Caracas to retain advisors to negotiate the restructuring of its external debt, alongside a renewal of Citgo’s protection from PDVSA 2020 bondholders through June 19, 2026.

Social Situation and Human Rights

Despite U.S. tutelary efforts to shore up and stabilize the economy — which include a near-tripling of hard currency revenues and an aggressive push to attract investment in hydrocarbons and mining to revive economic activity — four months after Maduro’s removal, those gains have not filtered down to the population. Venezuelans continue to face ever-higher prices and wages that offer no real improvement. Meanwhile, the modest economic recovery has put the country’s already-deteriorated national power grid under new strain, intensifying outages and blackouts.

Furthermore, mounting evidence that the repressive apparatus and human rights violations continue has deflated the country’s hopes, leading many to conclude that the interim government is more of the same. Protests driven by economic grievances have intensified. Human rights have returned to the forefront following reports of the concealment and delayed disclosure of the death of Mr. Víctor Quero while in state custody and without due process; there are reports that others who have been forcibly disappeared may have suffered the same fate.

Oil Operations

The week has been marked by power outages that have affected production, primarily in the western part of the country. This week’s output stood at 906,000 barrels per day (906 MBpd), distributed geographically as follows:

West:               251 Mbpd

East:                108 Mbpd

Orinoco Belt:  547 Mbpd

TOTAL:            906 Mbpd

The joint ventures operating under OFAC licenses and the new contracts established under the recently amended Hydrocarbons Organic Law (LOH) are producing the following volumes:

Chevron:          249 Mbpd

Repsol:              47 Mbpd

M & P:               31 Mbpd

The Orinoco Belt joint ventures with Chinese and Russian partners produced:

PetroSinovensa:  91 Mbpd

PetroMonagas:    87 Mbpd

National refineries processed 242 MBpd of crude and intermediate products, yielding 72 MBpd of gasoline and 77 MBpd of diesel.

The Petrochemical Complex at José is operating normally, though output was marginally reduced due to electrical issues and limited natural gas availability. Daily production stands at 5,800 metric tons (MT) of methanol, 2,400 MT of ammonia, and 3,300 MT of urea. The Morón Complex remains idle, awaiting a natural gas supply.

April export figures require a revision, as a cargo bound for India departed in time to be counted within the month. Accordingly, crude shipped to India totaled 350 MBpd, bringing the month's total exports to 840 MBpd.

The Venezuelan crude basket averaged $86.3 per BBL.

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