BETWEEN MENACE AND HOPE

El Taladro Azul  Published  originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

The recent upward trend in oil prices, driven by geopolitical risks, was tempered by announcements from Tehran that its response to the attack on its consulate in Damascus would be limited to avoid escalation and US intervention. This news, along with rising US crude oil inventories and concerns that the Federal Reserve (FED) and the European Central Bank (ECB) could delay interest rate cuts, took the strength out of the rally. rise in oil prices, at least until the markets close on Friday the 13th.

The detente was the result of comments by Iranian Foreign Minister Hossein Amir-Abdollahian to his German counterpart that Iran is determined to respond to the Israeli attack on its consular headquarters in Damascus, but that it would do so in a “appropriate” and limited manner. On the other hand, Hezbollah, probably in coordination with Tehran, attacked Israel's northern region on Friday afternoon, launching around 50 missiles, presumably to overload Israel's defensive system.

Continuous monitoring of the region by the US indicated that preparations were in motion for the launch of a considerable number of missiles of different types. In preparation, the US moved “additional assets” to the region to bolster regional deterrence efforts and increase protection of US forces exposed to potential attack. On April 13, the observations became reality and in several batches, apparently designed to overwhelm the functional capacity of the Israeli “ Iron Dome “, 181 drones, 30 cruise missiles and 120 ballistic missiles, a total of 331 armed devices, were launched from Iran. Around 2 a.m. (Israel time) they began to approach Israel. Israel, Jordan and Egypt closed their airspace to avoid possible incidents with civil aviation.

The US and UK air forces intercepted several dozen drones before they entered Israeli airspace, and the “Iron Dome” and Israeli aviation were responsible for neutralizing the rest. As a result, and without official confirmation until now, more than 90% of the missiles and drones were intercepted, more than 170 before reaching Israel. Some  managed to penetrate the “Iron Dome” and  fell in and near the Nevatim military base , in the northeast of the country, without affecting the continuity of operation of the facilities, according to the Israeli government. 

As part of the Iranian escalation against Israel, the Revolutionary Guard captured this Saturday the MSC Aries ship, Portuguese flag and operated by the Zodiac company of Israeli magnate Eyal Oferde, while it was navigating the Strait of Hormuz in the Persian Gulf. Iran, through the official Iranian news agency IRNA, confirmed the incident. We have to remember that on Thursday the 12th the commander of the Iranian naval forces warned that he could close the Strait of Hormuz if he considered it necessary – a double-edged sword for the Iranians.

The big question now is how Israel will respond to this direct and massive attack from Iran on Israel. The war cabinet was meeting and deciding next steps, while President Biden asked Netanyahu to avoid a counterattack. The fact is that the conflict between Palestinians and Israelis has spread beyond the area surrounding Gaza, and the years-long “Cold War” between Iran and Israel appears on the verge of heating up; although there is much speculation that the attack was purely nominal and only signaled Iran's willingness to defend its interests. In fact, Iran's Foreign Minister Hossein Amir Abdollahian stated that he had notified neighboring countries, including the United States' main allies, 72 hours in advance.

At the time of closing this column, market activities were beginning in Asia: oil prices reacted very moderately, although without a doubt the actors are watching the events with understandable anxiety.

Regarding the world economy, we find a mix of news, negative and encouraging, that induces central banks to rethink their plans to reduce interest rates. Thus, we see a rebound in inflation in some regions, signs of an increase in manufacturing activity in Germany, and an increase in job creation in the US. While in China, the economy is not reacting to government stimuli as expected , and India is taking over from China in terms of its growth rate.

In the US, the consumer price index rose 0.4% monthly in March, and 3.5% annually. Federal Reserve officials expressed concern that inflation was not falling fast enough, as FOMC (Federal Open Market Committee) meeting notes from the March meeting revealed. However, monetary authorities are confident they can cut interest rates at some point this year. Europe kept interest rates unchanged, but opened the door to a first reduction in June this year.

In the hydrocarbon sector, the US crude oil production, published by the EIA , continued at a plateau of around 13.0 MMbpd, although that figure tends to be revised over time, depending on adjustment factors applied by that agency. Our calculations point to production of 12.9 MMbpd, which is still the highest production of all countries. The relative stagnation is closely linked to the relative low level of drilling activity, which has been falling since the end of 2022. This week was no exception, the Baker Hughes weekly report shows a reduction of 3 units over the last week.

That same report, which shows the movements of active drills in the rest of the world, on a monthly basis, indicates that about 15 units were incorporated during March. These increases correspond to Saudi Arabia, Nigeria, Algeria, Brazil and Indonesia; and five additional in Canada.

For its part, OPEC maintained its bullish outlook on global oil demand, while cutting its supply forecasts for 2024, which would push the market further into deficit for the next quarter. The cartel forecasts oil demand growth of 2.25 million bpd by 2024 and 1.85 million bpd in 2025. 

Almost in response to OPEC's position, the International Energy Agency (IEA) on Friday cut its 2024 oil demand forecast by 130 MBPD, followed by another slowdown next year and a return to baseline "normalization." . The agency now forecasts oil demand growth in 2024 of 1.2 MMbpd, slowing for the second consecutive year to 1.1 MMbpd in 2025.

So, as a reflection of these economic and geopolitical news, prices fluctuated during the week within a narrow band, depending on the order in which the news was known: for Brent crude, between $90/bbl and $91/BBL. At the close of the markets, on Friday, April 12, the Brent and WTI crude markers were trading at $90.45/bbl and $85.66/bbl respectively.

In other news.

• Natural gas in the US will be cheaper to burn than coal in 2024 for the first time in history, EIA said on Tuesday in its Short-Term Energy Outlook (STEO). It must be remembered that the very low gas prices in the US are related to the limitations imposed by the government on the export of liquefied gas and obviously to a surplus supply. In some regions, associated gas producers have paid customers to receive gas deliveries so as not to have their production operations affected.
• Brazil's state oil company Petrobras said on Tuesday it had discovered oil deposits in the ultra-deep waters of the Potiguar basin. This is the second well in Potiguar where the oil company finds hydrocarbons. Both findings are still subject to further study, Petrobras said. Potiguar is located on the so-called Equatorial Margin, a large area in northern Brazil that is considered the most promising frontier for Petrobras' oil and gas exploration. The discovery is located in waters with a water depth of more than 2,000 meters and could be related to the Guyana/Suriname basin from a geological point of view.

VENEZUELA

The US still seeks efficient pragmatism

Just two days before what we call “L Day”, April 18, that is, the expiration of the validity of OFAC License #44, uncertainty increases regarding the actions of the White House authorities. Indeed, when everything indicated that the United States would be forced to enforce its warning to suspend the license due to the regime's repeated lack of knowledge of the Barbados agreement, it was learned that the negotiators of Venezuela and the United States maintained “secret” meetings in Mexico; Jorge Rodríguez for the regime and a delegation from the White House headed by Daniel Erikson.

Each side gave an interpretation to the meeting according to their particular interests. The US representative indicated that the purpose was “to express our concerns about the electoral process in Venezuela,” while those close to the regime have said that it was demonstrated to the Americans “that the electoral process complied with the Barbados agreements.” . The regime alleged that a number of candidates identified with the opposition were registered to participate in the race, which according to them shows that the process is competitive; obviously without emphasizing that the PUD, which probably gathers 70% of the electorate behind María Corina Machado or Corina Yoris, has not been allowed to participate, simply blocking their access to the CNE. During the weekend it became known that there were negotiations in the opposition to find a solution that would effectively unify them.

In a maneuver with obvious electoral connotations, and under an avalanche of international accusations, the regime announced the arrest of former minister Tareck El Aissami and his closest figureheads. They are accused, among other things, of treason and money laundering. Everything looks like an attempt to whitewash a regime in which, of the last 5 presidents of PDVSA and Ministers of Hydrocarbons, one is on the run in Italy, two are in prison, one died while in prison and another was dismissed. Added to this is the conviction of General(r) Clíver Alcalá, the soldier closest to Chávez, and the trial of General(r) Hugo “pollo” Carvajal; In Europe, a number of assets were frozen belonging to high-level officials of the regime accused of money laundering and drug trafficking.

Another international scandal that could have repercussions on the image of the regime are the statements of the Chilean prosecutor, Héctor Barrios, who assured that the kidnapping and murder of Venezuelan lieutenant Ronald Ojeda was a crime with political motives and that it was requested from Venezuela.

As expected, public spending has increased, in part to expand the CLAP program. On the other hand, the injection of foreign currency into the exchange market was used to avoid the devaluation of the Bolívar and try to control inflation. To a large extent, this achievement is related to foreign exchange from Chevron's operations and more recently to better prices for hydrocarbon exports.

Hydrocarbon Sector 

One element has gone under the table, since it has not been mentioned by the media or by related companies, is the dredging of the Maracaibo Lake canal,  evidenced by the passage of tankers with greater draft in that important maritime route.

This week the electrical problems continued but without affecting oil activities. While Baker Hughes reported that drilling rigs in operations increased to 3 units, a figure seen for the first time since April 2020.

Crude oil production averaged 777 Mbpd during the last 7 days, the same as the previous week, distributed throughout the national geography, as follows:

• West              151 (Chevron 58)

• East              147

• Orinoco Belt              479 (Chevron 87)

• TOTAL 777 (Chevron 145)

Refining returned to pre-accident processing levels and averaged 186 Mbpd, with a gasoline yield of 49 Mbpd. So the internal market continues to depend on imports through barter.

Exports during the first 12 days of the month have been conducted as scheduled, but it is difficult to predict so early in the month, especially with the risk of reactivation of sanctions that would affect purchases from India and potentially other customers. One element to note is that there have been no crude oil exports to Cuba, presumably to increase revenue from crude oil sales.

In the continuing saga of the PDVSA 2020 bonds, the Southern District of New York court in VR Global Partners LP v. Petróleos de Venezuela SA Ad Hoc, No. 23-cv-05604, granted PDVSA Ad Hoc's motion to dismiss the claims filed by VR Global Partners, LP, regarding the bonds. This decision eliminates, for now, an additional complication to the general case of the invalidity of the PDVSA 2020 operation, which continues its legal process in another court in the same jurisdiction, while reaffirming that the actions of PDVSA Ad Hoc in defense of Venezuela's interests have been conducted with total transparency and legality.