El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
A ceasefire in Gaza is back on the agenda, creating some downward momentum for crude oil prices, while reports from the US indicate crude and product inventories are down. To complement the unstable recipe, the Biden administration is urging Ukraine to stop attacks on Russian refineries, underscoring the bullish effects that the escalation in that conflict is beginning to have on the market. The US position is clearly inconsistent, since, on the one hand, it imposes sanctions that put Russian exports in trouble and on the other hand it asks Ukraine for restraint so as not to affect Russian exports.
The outlook for the year, with demand growing and inventories falling, continues to point to rising prices. The Energy Information Agency (EIA) revised its Brent forecast to $88/BBL for the second quarter, up $4/BBL from its forecast last month.
CERA WEEK.
As is traditional for this time of the year, Houston became the energy capital of the world during the week. CERA WEEK is a meeting organized by Standard & Poor Global, bringing together the most influential people in the world of energy, with a strong contingent from the fossil industry – which, after all, is still the predominant energy (+80%) in the world.
This forum also welcomes politicians from the four corners of the planet, and a multitude of experts in traditional and alternative energies. The attendance of environmental activists is controlled to avoid disruptions to the agenda, but still, outside the meeting there were protests calling for an end to the use of fossil fuels.
During last year's CERA Week, a separate Climate Hub was established, where this year there were presentations on energy innovation and emerging technologies. Industry attention on climate issues has intensified, driven by recent tax incentives, introduced in the US and Europe, to favor clean technologies and promote the reduction of the use of fossil fuels.
In the deliberations on the hydrocarbon market, a general perception reigned that was very different from those presented in the sessions dedicated to the energy transition. Amin H. Nasser, CEO of Aramco, said the current energy transition strategy is visibly failing and noted that demand for fossil fuels is expected to continue growing. He proposed a “reset of the transition strategy”, suggesting that the focus should shift from phasing out oil and gas to investing appropriately in them, based on realistic demand assumptions, and devoting greater effort to emissions reduction technology.
In general, the leaders of the big oil companies predict growth in demand for hydrocarbons beyond the 2030s, and regarding the energy transition, they agree that it will require many solutions, appropriate “know-how” around the world, and different deadlines. In other words, it requires continuous review and implementation of new technologies, maintaining the world's energy security in a reliable and accessible way.
Russia
Russia is feeling the effects of attacks on its refineries and energy facilities. The last of these attacks was on Saturday the 23rd, in the border region of Belgorod, despite US insistence to Ukraine to avoid the bombing of energy infrastructure. Russia also faces problems exporting its crude oil due to sanctions imposed by the US; the most recent example is the decision by Indian refiners not to accept Russian crude transported on the recently US-sanctioned fleet.
Another blow to the Russian economy is the reduction in Chinese purchases of Russian coal so far this year, after Beijing reimposed import tariffs that make Russian supplies less competitive, even though Chinese demand increased in the same period. A drop in oil and coal exports is expected, with the corresponding reduction in income.
To further complicate the internal situation, a terrorist attack was carried out on the outskirts of Moscow, for which the jihadist group Islamic State has claimed responsibility. The event took place at a concert, where nearly 150 people died, and many others were injured.
Middle East.
Regarding hostilities in the Middle East, the US proposed an immediate ceasefire before the UN Security Council, in a further step to pressure Israel. However, Russia and China vetoed the motion, probably due to vetoes received from the US in its previous proposals. Meanwhile, the Israel Defense Forces (IDF) were carrying out a “high-precision operation” in specific areas in and around Al-Shifa hospital. The attack on Rafah remains still on the drawing board, while the US tries to persuade Israel of alternative ways to defeat Hamas; alternatives aimed at stopping arms smuggling across the Egyptian border.
Meanwhile, Yemen's Houthi rebels announced that they are guaranteeing the safe passage of Russian and Chinese ships through the Red Sea, reiterating that the main objective of their attacks is to “increase the cost of the war for Israel and its allies.” If the cessation of hostilities is agreed, it would reduce geopolitical tension. However, there is a low probability of reaching the agreement as long as Israel does not consider its mission accomplished, including the recovery of the hostages. This would point to a greater likelyhood of expansion of the conflict and effect on oil supplies.
USA
The situation in the US, in general terms, boosted the oil market: inventories of crude oil, gasoline, and distillates declined, production continues to be around 13 MMbpd, but with a downward trend. Active drills, reported by Baker Hughes , fell by 5 units versus the previous week, and the Federal Reserve maintained interest rates, although it kept alive the expectation of up to 3 reductions this year.
As we have been maintaining, the largest oil producer in the world does not present a threat to the balance of the oil market in the short term.
China
China's economy has regained some strength recently. We expect this to continue in 2024, thanks to fiscal policy support and a further rebound in household spending. But with property construction likely to continue to decline and exports to follow suit, the recovery will lack momentum. Growth will have fallen below 4% by the end of the year. Considering the country's export capacity, oil demand will only grow marginally, but regionally, including India, Asian demand will see considerable growth.
OPEC+
So far, the cartel has maintained, on average, firm compliance with announced production cuts. These are largely not sacrifices regarding the capacity of the members, many of them simply do not have additional production potential. Regarding those that can open the valves, they will keep an eye on the behavior of oil demand and supply to gradually reduce the cuts. The cartel will meet next week, but a change in strategy is not expected.
In summary, on Thursday and Friday, after a quiet week, oil prices came under slight downward pressure as a ceasefire in Gaza was judged to be imminent. However, strong fundamentals halted further price decline. Thus, Brent and WTI crude oil, at the close of the markets on Friday, March 22, were trading at $85.56/bbl and $80.82/bbl, respectively.
In other news.
· Suriname's state oil company, Staatsolie, has begun talks with oil majors ExxonMobil and TotalEnergies to encourage joint development of natural gas fields extending into Guyana's waters. The early-stage discussions are part of Suriname's efforts to increase foreign investment in its energy production and turn the South American nation into a regional gas hub. Its first major offshore oil production is about four years away.
· Not wanting to be left out of the EXXON-HESS conflict, the Chinese state oil company, CNOOC, has started an arbitration procedure at the International Chamber of Commerce. CNOOC claims that it wants to exercise its right of preference over Hess's participation in the Stabroek block in its contract in Guyana, as did its partner and operator ExxonMobil.
· A group of US Republican lawmakers have attacked the International Energy Agency (IEA) in a letter, dated March 20, addressed to its executive director, Fatih Birol. The letter accuses the IEA of becoming a “cheerleader” of the energy transition, and of undermining energy security, by discouraging sufficient investments in energy supplies, specifically oil, natural gas and coal. Additionally, the letter asks Birol to detail the origin of its financing.
VENEZUELA
Maria Corina +Corina
Finally, the opposition's strategy of maintaining the fight for the authorization of María Corina Machado and not incurring in promoting abstention, if that objective is not achieved, was made public. María Corina Machado announced, to the surprise of most observers, that Dr. Corina Yoris, an academic with little political experience, would register as the candidate of the PUD for the elections. At the press conference next to Yoris, Machado said that the decision to make the substitution was made unanimously in the Unitary Platform because she is illegally disqualified from being a candidate. He added that he will continue campaigning, touring the country and seeking his authorization.
Meanwhile, the regime has continued to intensify repression: forced detention and persecution of opponents; criminal indictment of key people in the opposition's electoral campaign; elimination of political representation of parties that attempted to participate in the electoral contest; preferential treatment for the registration of candidates representing mock parties; delays and complications for registration in the electoral registry, obstruction of international participation; and let us not forget, the use of public spending for electoral purposes in favor of Maduro.
But all of the above could not guarantee an official victory, due to the population's fatigue with the lack of public services, miserable salaries and the hope of a change represented by a legitimate opposition candidacy. At the close of this column, Yoris’s formal registration had not been possible to materialize due to the bureaucratic obstacles imposed by the regime using the National Electoral Council.
Government funds have begun to dwindle. Public spending during the last 10 days has been reduced compared to previous months. Annualized inflation, although it has remained more or less constant, appears to have an inflection point, as does the exchange rate. The Bolívar, in the parallel market, was trading above 39 Bs./$.
It was rumored that the Government of Trinidad was in talks with the US to obtain a License, like that obtained for the development of the Dragon Field in Venezuela. This time for the joint development of the Manakin-Cocuina fields on both sides of the border between Trinidad and Venezuela. This development involves BP on the Trinidad side and proposes developing the binational field, with the aim of supplying gas to the Atlantic LNG liquefaction plant.
Hydrocarbon Sector
Accidents continued to affect oil activities in the country. This week, an explosion occurred in one of the distillation towers of the Cardón refinery in Paraguaná, resulting in an unknown number of personnel with burns. The incident occurred while attempting to restart the refinery following a previous blackout caused by problems in the refinery's electrical generation. This new fire once again impacted the electrical system and therefore the operability of the refinery.
In the east, the effects of the explosion the previous week at the PetroPiar facilities are still being felt, and production has not yet been fully restored.
This last week, crude oil production averaged 769 Mbpd, distributed throughout the national geography, as follows:
· West 147 (Chevron 58)
· East 147
· Faja del Orinoco 475 (Chevron 84)
· TOTAL 769 (Chevron 142)
Chevron's production remained constant, since the generation of potential by drilling new wells at PetroIndependencia has not materialized yet, the first well is just about to be completed.
Thus, national refining barely averaged 100 Mbpd with minimal production of gasoline and diesel, which will undoubtedly impact the availability of these products in the domestic market.
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