El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
The discipline of OPEC+ with its production cuts, the macroeconomic outlook, and the turn of events in Russia's war confrontations with Ukraine and between Israel and the terrorist groups that surround them at the behest of Iran. These events have generated a bullish current in the oil market. Neither these elements that strongly influence the oil market, nor the smaller ones, show evidence of change in the short term, which suggests that there is a high probability that oil prices will continue to rise.
· OPEC+, either due to political will or due to the inability of some of its members, shows no inclination to change its policy of cuts, which has been extended throughout the second quarter.
· Global inflation seems to begin reacting positively to the monetary policies of central banks, which has made it possible to stabilize interest rates and even begin to project eventual reductions. Consequently, the world's major economies, with some notable exceptions, appear to have taken a different path to recession.
· The confrontation between Russia and Ukraine has expanded. Ukraine has caused significant damage to Russian refineries and energy infrastructure, as well as its naval fleet in Crimea. This is having a material effect on the distribution of petroleum products in the Russian domestic and export markets, already affected by incremental US sanctions. Russia, for its part, has intensified bombing and advances into Ukrainian territory. Meanwhile, support from the West for Ukraine is weakening, which calls into question its defense capacity in the medium term.
· In the Middle East, not even the approval by the UN Security Council of a ceasefire in Gaza and a call for the release of Israeli hostages, with the US abstaining, managed to slow down the Israeli offensive. This, in turn, encouraged Yemen's Houthis to step up their attacks, including on US warships, creating increased demand for fuel and delays in supply chains. Despite the political differences between the US and Israel, probably due to the electoral context in North America, President Biden approved the sending of military equipment to Israel. This is vital for the country's defense and the execution of its plans against Hamas.
· Even using a moderate annual increase of 1.3 MMBPD for global demand, our incremental supply projection would not close the gap between demand and supply, which provides strong support to the oil market during the coming months.
In a week shortened by the celebration of Easter Week (on Friday the markets remained closed), the oil market assimilated the increase in inventories of crude oil and products in the US, published by the EIA. The oil market continued its advance, with a gain of more than 1.5% for the week and almost 6% for the month.
In sum, at the market close on Thursday, March 28, the Brent and WTI crude markers were trading at $87/bbl and $83.17/bbl, respectively. Strong fundamentals, supported by rising geopolitical uncertainty, have combined to maintain the bullish mood in the oil market.
In other news.
· Libya unexpectedly suspended the person in charge of that African country's oil management. Oil Minister Mohamed Oun was suspended pending a government investigation into alleged violations, including “circumventing the law and wasting public money.” Within hours, a replacement was named from the board of directors of the state-run National Oil Corp., which has frequently been at odds with the minister. Oun has denied any wrongdoing and said the investigation should be accelerated.
· Iran agreed to a five-year extension of a natural gas supply agreement with Iraq. Through this agreement, Iraq will receive up to 1.7 MMMcfd (billions of cubic feet per day), a gas necessary for electricity generation in the summer months of greatest demand.
· The oil production of the Mexican state company, Pemex, reached its lowest monthly level in 45 years, and far from the objectives established by President López Obrador at the beginning of his mandate. The latest available figures are from February, showing an average of 1.55 MMbpd.
· The blockade of the port of Baltimore, USA, resulting from the collapse of the Francis Scott Key Bridge due to the impact of a container ship, will have serious economic consequences. The transportation of coal, automobiles and in general, the relocation of the ship traffic that is handled in one of the largest ports on the east coast of the United States will be affected.
· Ithaca Energy (LSE: ITH), the company behind the controversial Cambo and Rosebank oilfields in the North Sea, is considering a deal with Italian giant, ENI , that would see the oil giant take almost 40% of the total of the British company. Ithaca would manage ENI's UK operations, making it the second-largest single operator in the UK. The deal would allow Ithaca to take control of ENI assets that generate between 40,000 and 45,000 barrels of oil per day. The companies have one month to decide to proceed with the operation.
VENEZUELA
Free Elections?
The Venezuelan political situation continues to deteriorate. María Corina Machado and Corina Yoris, the opposition standard-bearers, denounced the maneuvers of the National Electoral Council (CNE) to hinder the registration of candidates, alleging that: “it eliminated any possibility of free elections.” The CNE's action seems to have occurred because the choice of Corina Yoris as an alternate candidate caught the regime off base and made it react in an evidently illegal manner.
The regime's tactic of sowing rumors to demoralize and divide, forcing the opposition down the path of abstention, does not seem to have worked for now. Late on March 25, before the deadline to register candidates expired, the governor of Zulia, Manuel Rosales, registered with the UNT party card. This registration, not entirely unexpected, has generated all kinds of rumors around Rosales' role in the upcoming elections, until now, an enigma.
MCM keeps the regime out of position with what the press has dubbed “strategic ambiguity”, in other words, maintaining a firm but enigmatic course; directionally defined by “until the end” and “we will not deviate from the electoral path” and keep all options open until the last moment.
The Western world reacted vehemently to the regime's evidently undemocratic actions. Even the ideologically related governments, Lula (Brazil) and Petro (Colombia), as well as the leftist Pepe Mujica (Uruguay), called the measures undemocratic and inconvenient, to which Jorge Rodríguez responded in his characteristic style of insulting rather than arguing: “Put your opinions where they fit.”
Just days before the expiration of OFAC License 44 (April 18), and despite the Biden administration's announcements that non-compliance with the Barbados Agreement would be responded to with sanctions, the Wall Street Journal , citing sources from the North American government, reported that the White House is unlikely to reinstate sanctions on Venezuela's oil sector in April.
This confusing behavior of the White House is due, according to the WSJ, to the administration's concern that the reinstatement of sanctions on Venezuela's oil sector could raise gasoline prices in its domestic market: an argument without any basis in fact. In addition, it is said that the extinction of the licenses would contribute to the increase in the migration of Venezuelans to the United States, in the midst of the current border crisis, something difficult to verify.
The WSJ report further indicated that US officials are also concerned that oil sanctions on Venezuela could create an opportunity for Chinese investment to fill the void in Venezuela's energy sector. The truth is that extending licenses is not a sufficient condition for the recovery of an oil industry that is inserted in a collapsed state.
It is rumored that a new version of General License 44 could establish one scheme for US investments and another for European ones. In any case, the specter of uncertainty about License 44 is already having an effect. It is reported that India has decided to suspend purchases of Venezuelan crude oil until the situation is clarified.
There are well-founded rumors of conversations with Petrobras and other Brazilian groups to assign them important oil activities in transactions largely motivated by debt repayment and political reasons: the Jv PetroSanFelix and PetroCedeño, both with blocks in the Orinoco Belt, are mentioned as possible areas of interest.
Hydrocarbon Sector
The electricity supply situation has become a central problem, not only because of the hardship it causes to the population and the losses it generates in industry and commerce, but also because of the effects it causes on oil activity. This week, the most affected was exports, as the loading capacity of the Jose terminal in the east of the country was reduced.
Production activity also did not escape the vicissitudes of the electrical system, although the effect was not material. This last week, crude oil production averaged 765 MBPD, distributed throughout the national geography, as follows:
• West 148 (Chevron 5 8)
• East 147
• Faja del Orinoco 470 (Chevron 85)
• TOTAL 765 (Chevron 143)
Chevron's production increased by approximately one thousand barrels per day due to the completion of the first new well drilled at PetroIndependencia.
Refining began to recover basic processes in Paraguaná. Processing at the country level averaged 166 MBPD, but with low yields in gasoline production. The potential help expected from the production of MTBE in the east has not yet materialized, since the plant has had operating problems and a lack of raw materials.
The greatest uncertainty arises with crude oil export volumes. We had mentioned that the month was shaping up to export about 640 MBPD. However, electrical and logistical limitations in loading tankers appear to have reduced this objective significantly.
Just a few days before the end of the month, we find a concentration of tankers anchored around the Jose terminal, waiting for their cargo and paying for the delay (" demurrage "), while the export confirmed that it does not reach 500 MBPD. Even with optimal operation during the last days of the month, exports will decrease compared to recent months.
Much of Chevron's exports of around 160 MBPD are being resold to other Gulf Coast refiners, such as Valero PBF and Phillips 66.
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