El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
When OPEC+ announced that it would postpone its ministerial meeting from November 26 to 30, many imagined that the additional time would be used to reach substantive agreements on its voluntary production cuts strategy. Unfortunately, the two announcements published by OPEC, reporting what was agreed by the producing countries behind closed doors, offered few answers and sowed many doubts about the strategy of the expanded cartel, reinforcing the negative feelings that have been accumulating in the oil market. The agreements on the production cuts, announced in an unusually confusing language, can be summarized as follows:
· The voluntary cuts will be effective during the first quarter of 2024 and will be adjusted to oil market conditions.
· A total of 1,696 MBPD cuts were offered by Saudi Arabia, Iraq, UAE, Kuwait, Algeria, Kazakhstan and Oman.
· Russia will maintain a reduction of 500 MBPD in its exports (300 MBPD crude, 200 MBPD products) compared to the May and June averages
· Incorporation of Brazil into the OPEC+ group.
To help understand the scope of the announcement, let's break down the announced cuts, of around 2.2 MMbpd, in relation to the current operational situation:
OPEC cuts | Volume (MBPD) | Comment | Incremental cut (MBPD) |
Saudi Arabia | 1000 | Current cut extended | 0 |
Russia | 500 | Current Cut Partial Extension | -200 |
Iraq | 223 | Kurdish production closed | 0 |
UAE | 163 | Overproduces 100 MBPD | 163 |
Kuwait | 135 | Produces below quota | 35 |
Kazakhstan | 82 | Produces below quota | 0 |
Algeria | 51 | Produces below quota | 0 |
Oman | 42 | Overproduces 80 MBPD | 42 |
Total | 2196 | 40 |
As is customary, the voluntary cuts exclude Iran, Nigeria and Venezuela, countries whose production, reported directly to OPEC, rarely coincides with what is reported by the secondary sources used by OPEC. To add to the confusing situation, Angola not only did not announce an additional voluntary cut, but publicly rejected its current quota and reiterated its proposal for a quota of 1.18 million barrels starting in January. He added that he will not abide by the new OPEC quota.
It is no surprise that even the most experienced industry observers and analysts have trouble keeping track of the over-compliance, reductions, and under-compliance resulting from these announcements, with the aggravating factor that the baseline for the announced cuts is not uniform.
Thus, in a simplification of all this arithmetic, these latest announcements are but a voluntary reduction almost identical to the one in force today, ignoring the already well-known lack of reliability of Russia and some other countries to comply with the agreements. In short, a decision that has no real effect beyond extending the status quo until March 2024.
Why then do prices fall after the announcements? It is assumed, if one gives credibility to the announcements from Vienna, that the decision is a response to the projection of an oversupplied market, for the beginning of 2024, which seems contradictory to the oil demand projections recently published by OPEC. Additionally, some analysts claim that there is a supply deficit, and it is difficult to identify supply sources that can overcome the deficit. At the very least, this situation is evidence that the market research group and the cartel's strategy group are not on the same page.
This lack of clarity in the OPEC+ announcements is disorienting since it is taken as evidence of a lack of cohesion within the cartel when it comes to taking effective measures. These are not good signs at a time when the two superpowers, the US and China, and the world economy in general, expect oil to flow continuously and without artificial price controls.
In another scenario, for most of the week, prices found some support in the problems caused by storms in the Black Sea, which considerably delayed oil shipments from Russia and Kazakhstan, problems that seem to last over time.
The events related to the wars in Ukraine and Gaza have not had any repercussions on the oil market, for now, even though both fronts have been very active.
· When it comes to the Russian invasion of Ukraine, there has been activity both on and off the front lines. Russian authorities are trying to quell the protests from the wives of soldiers deployed in Ukraine before it becomes a bigger problem. Regarding the military, Russia has been pressing and even advancing in the northeastern region, while Ukraine has made advances, crossing and recovering land south of the Dnieper River and increasingly harassing the Crimean Peninsula, today under Russian control.
· In the Israel/Hamas conflict, a ceasefire was achieved to exchange Israeli hostages for Hamas prisoners and allow humanitarian aid to be distributed in Gaza; The truce was extended twice due to strong pressure from the international community. However, the ceasefire collapsed, and the conflict restarted: Israeli warplanes resumed bombing Gaza; Palestinian civilians fled for shelter, and missile warning sirens sounded again in southern Israel.
The US continues to maintain its crude oil production level at 13,2 MMbpd (including lease condensates). An increase in its inventories, both crude oil and products, also put downward pressure on prices.
In short, the fundamental elements in the formation of prices seemed to have achieved a somewhat unstable balance, but that was disturbed by the news emanating from OPEC+, which, as we concluded previously, left the market with many doubts, and moved it into bearish territory. So we are ending another week (the fifth) with falling prices. The Brent and WTI crude oil markers at market close on Friday, December 1, were trading at $78.88 and $74.07/BBL, respectively. It may be that the spirit of Christmas (market fundamentals) clears up the outlook and a “Santa Claus Rally” occurs, as has happened at some end of the year.
Although it has nothing to do with the short-term oil market, it is relevant to mention that the trend of company consolidation continues, particularly in the Permian Basin in the US. ConocoPhillips (NYSE: COP) and OXY (NYSE: OXY) are vying to add CrownRock to their respective portfolios. The approximate value of CrownRock's assets, almost entirely located in the Midland sub-basin, is about $10 billion but could rise due to the bidding between the two companies courting it.
VENEZUELA
Political Events.
The date set by the U.S. State Department as the milestone for evaluating progress on compliance with what was agreed in Barbados last October between the regime and the opposition came and went, and did not leave much clarity about the considerations that the White House may have after so much fuss. The political prisoners, Venezuelan or American, were not released. Regarding the qualification of the presidential candidates, at the last hour, the Norwegian mediators reported that the regime had sent them a “procedure” so that the disqualified candidates could request protection from the Supreme Court of Justice to obtain qualification.
The procedure made public is very particular and has given rise to much criticism, not only because of the instance to which it must be resorted, which is known to respond to the interests of the regime but also because the mere request for a precautionary measure before the TSJ could imply the admission, without being true, that the applicant is disqualified, a kind of “CATCH 22”.
Surprisingly, the US State Department, in a press release, dated December 1, stated: “The United States welcomes the measures taken to implement the electoral roadmap agreement between the Unitary Platform and the representatives of Nicolás Maduro, in particular the November 30 announcement that defines the schedule and process for the reinstatement of all candidates…” We will have to investigate further to be able to interpret the reactions.
Another important event, no less controversial, was the ruling of the International Court of Justice (ICJ), in response to Guyana's request for precautionary measures against the consultative referendum scheduled by the regime for December 3. Both parties have declared the court's decision a victory and the referendum went ahead – at the close of this column a very low turnout in the vote is reported, but it is expected that the regime will also inflate the numbers.
With the deafening noise of the dispute with Guyana and the Biden administration's ultimatum regarding compliance with the Barbados agreements, due attention has not been paid to an event that could affect the national economy, and perhaps even its sovereignty.
As we commented in a previous installment, the government of Trinidad and Tobago (T&T) gave Shell Trinidad the license to proceed to develop the natural gas field known as Manatee, located in the waters of the Deltana Platform. In new news, the North American contractor McDermott has received, from Shell Trinidad, a notification to proceed to prepare an engineering, procurement, construction and installation contract for the development of the Manatee field. Now, this enormous accumulation of natural gas, discovered by PDVSA with the Lorán-1X well in 1980, extends between the territorial waters of Trinidad and Venezuela; In fact, more than 70% of the deposit is located under Venezuelan waters. However, the Venezuelan regime gave up in the recent past from continuing to negotiate joint development with T&T. Now that OFAC sanctions cannot be used as an excuse, and that there is a parallel business with Paria gas, Venezuela should enter into the corresponding negotiations for unified development of Manatee, under penalty of ending up in another claim for Venezuelan rights that They were not timely defended.
Hydrocarbons Sector
Oil activities in Venezuela suffered few changes in the week. The production level remains around 750 MBPD, everything indicates that this is how the year will end. This “ceiling” in production emphasizes that the liberalization of sanctions is not enough, but that actions are required to resolve the structural problems that limit the oil industry (insecurity, electricity, lack of personnel, among others), as well as improve fiscal competitiveness and legal confidence in the country.
Production: December begins with a production of 748 MBPD, which will be complex to maintain, since this is a month in which there is traditionally under-execution of budgets, and the Christmas festivities lead to the management focus being relaxed; even more so this year, when an early start to the festivities was declared and distracted by border problems: another year and another president of PDVSA who fails to fulfill the promise of one million barrels a day.
The geographical distribution of production is shown below in MBPD:
· West 135 (Chevron 54)
· East 151
· Orinoco Belt 462 (Chevron 82)
· Total 748 (Total Chevron 136)
Merey 16 crude oil and DCO continue to be mixed, depending on the light crude oils available and the types of diluents. In the case of Chevron, only the DCO segregation is being dispatched.
Refining: The national refining system is processing and reprocessing 280 MBPD of crude oil and intermediate products; 66 MBPD of gasoline and around 77 MBPD of diesel are produced. This volume of gasoline has been complemented with imported gasoline from ENI/Repsol and Chevron, through barter mechanisms. An increase in gasoline distribution was observed in various places in the interior, presumably to guarantee mobility during Sunday's referendum.
Exports: November exports showed little difference from the previous month. Of the 780 MBPD produced, 280 MBPD were sent to refining, leaving 468 MBPD of exportable crude oil. Once mixed with the diluents required for Merey and DCO segregations, the total exported volume reached 490 MBPD.
Chevron sent 146 MBPD of crude oil to the US, as part of its operation in the joint ventures, and additionally 21 MBPD by barter of gasoline, for a total of 167 MBPD. The segregations exported by Chevron were 56 MBPD of Boscán crude oil, 26 MBPD of DCO and 84 MBPD of Hamaca crude oil.
239 MBPD of Merey 16 were sent to China; the rest of Merey 16 was sent to Cuba (20 MBPD) and Spain (64 MBPD). Several traders have chartered VLCCs (Very Large Crude Carriers) to sell the crude to PetroChina and Reliance in India, while a smaller portion would go to independent refiners in China; We will see these changes in the results for December. Additionally, 70 MBPD of products, mainly residual fuel, were exported to China and Cuba.
Taking into account the amounts corresponding to debt repayment, barter of oil for products and the volumes exported without monetary compensation, we estimate that the foreign exchange income from the sale of hydrocarbons, for November, was $492 million.
Being able to benefit from the new licenses issued by OFAC has not been easy, especially when it comes to selling crude oil to legitimate markets and receiving the funds at sanction-free prices. To judge by the reported prices of Venezuelan crude oil, this goal is still elusive.
ENERGY TRANSITION
COP 28
The UN Climate Change Conference (COP 28) began in the United Arab Emirates (UAE), bringing together prominent world leaders to discuss the issue of global warming and the energy transition, a two-week event. So far, what has been seen is a renewal of attacks against fossil fuels from all corners – forgetting the difficulties of the last two years in supplying reliable energy to the planet when coal, oil, and gas are dispensed with; Proposals from different countries to donate funds to finance the energy transition in underdeveloped countries have also been reiterated. There is some irony in the fact that the event is held in the Arabian Peninsula, whose subsoil is home to a third of the world's oil reserves – a situation that has been widely criticized by environmental groups.
To add to the irony, one of the most newsworthy commitments has been that of ExxonMobil and Aramco, the world's largest oil companies, which led the commitment of 50 oil producers to reduce emissions from their own operations – the signatory companies represent around 40% of world oil production. The agreement has raised a lot of dust, since none of the companies agree to reduce oil and gas production, but they do commit to limiting methane emissions (Ch4), one of the most dangerous greenhouse gases, to almost zero by 2030 and stop the routine flaring of natural gas.
We will have to wait for the deliberations to conclude to be able to analyze the impacts of this new global conclave.
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