El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
M. Juan Szabo and Luis A. Pacheco
The fundamentals of the oil market (demand/production) have been suggesting the consolidation of a deficit gap, which has been mitigated by the draining of inventories and the expectation that the economic recovery would be short-lived: something that can still happen. In addition, to this dynamic, the geopolitical events in Central Europe and the Middle East appear to be escalating.
· Ukrainian military actions against a significant number of Russian refineries and air bases
· The imminent Israeli offensive in Rafah, Gaza
· Iran's promised retaliation against Israel; and
· The continued siege by Yemen's Houthis against marine shipping in the Red Sea.
All of these elements contribute to increasing the probability of expansion of conflicts, which, since they are areas closely linked to the production and trade of hydrocarbons, translate into a substantial increase in the risk premium in the energy market. For example, one NATO official estimates that more than 15% of Russian refining capacity is affected by Ukrainian attacks. The oil market has reacted accordingly.
The weekly US inventory report, the release of employment indices, and the possible delay of the Federal Reserve (FED) in initiating interest rate cuts and other traditional market variables are being displaced by the developments in these conflicts.
The eyes of the world are focused on Iran and its potential for revenge for the attack on its embassy in Damascus, for which it blames the state of Israel, although it has not claimed responsibility for the attack. A senior Iranian official indicated that Iran has warned the US that it should not “be dragged into the trap set by Israel” and that it should stay out of the conflict. The official added that in response to the message, the US asked Iran not to attack US facilities. Seven Iranians were killed in the attack, including two experienced commanders of Iran's Islamic Revolution Guards Corps.
Meanwhile, the growing humanitarian crisis in Gaza has led Washington to consider changing its policy on the war if “Israel does not implement a series of concrete measures to address the impact on the civilian population, including measures for a ceasefire.” Warnings that many observers consider nominal.
Pemex, the Mexican state company, announced a reduction of more than 400,000 bpd in its crude oil exports, apparently because President López Obrador is trying to reduce its dependence on imported fuel. The Mexican cut adds to the discipline in OPEC+ production cuts, consolidating a bullish environment on the supply side.
If that were not enough, Pemex announced this Saturday an explosion that occurred on the Akal-B marine platform, owned by Petróleos Mexicanos (Pemex), in the Cantarell production complex, in the Campeche probe. At least one person was killed, and 13 workers were injured. The effect on production has not been reported.
Meanwhile, and with no measurable effect on oil prices, Colorado State University (CSU) predicted a very active Atlantic hurricane season for 2024, driven by the La Niña weather system. CSU forecasts 23 named storms, including 11 that are expected to become hurricanes and five that could reach major hurricane status. This is never good news for oil operations in the Gulf of Mexico, which are always affected by these storms, both offshore and onshore.
Thus, oil prices advanced to levels not seen since September of last year. The crude oil markers Brent and WTI were quoted, at the close of the markets, on Friday, April 5, at $90.86/BBL and $86.73/BBL respectively. As always, in these circumstances, some analysts are beginning to predict $100 per barrel for the summer in the Northern Hemisphere.
In other news.
· The Biden administration has announced it will not move forward with its latest plans to purchase oil for the Strategic Petroleum Reserve (SPR) amid rising prices. The Energy Department said it was “We will not award current bids for the Bayou Choctaw SPR site and will solicit available capacity as market conditions permit,” in its decision not to purchase up to 3 million barrels of oil for the Strategic Petroleum Reserve in the state of Louisiana.
· The Dutch parliament has delayed a vote on the permanent closure of the Groningen gas field in the north of the country, scheduled for October, 1 due to recurring earthquakes in the area. Several political parties have asked for guarantees that the closure will not threaten the country's energy security. The closure was scheduled for October 1, 2023, and will close permanently next October, the Dutch government said last summer. The fields were expected to remain in operational status for another year in case the country found itself on the back foot with an exceptionally cold winter in 2023/2024. For some time in January 2024, the field was needed, and the Netherlands activated two sites in Groningen to extract trace amounts of natural gas, as a frost approached northwest Europe earlier in the year, boosting heating and electricity demand.
· The US continues its efforts to increase pressure on Iran and the trade in its oil, citing the use of money from oil sales to support military efforts, including the war in Ukraine. The US Treasury Department has blocked 13 oil tankers and a Dubai-based shipping company that it says have been actively involved in the trade of sanctioned Iranian crude oil. The latest action centers on a Dubai-based company called Oceanlink Maritime DMCC.
· Brazil's government is weighing names to replace Petrobras CEO Jean-Paul Prates in the coming days, two government sources told Reuters on Thursday, but it is not a fait accompli. Prates has been pressured from parts of Brazil's ruling coalition, demanding that he lowers fuel prices and increase job-creating investments. Last month, he clashed with members of President Lula's cabinet over dividends withheld by Petrobras. State companies, as the case of Ecopetrol also exemplifies, are still vulnerable to politics even if they are listed on the stock market.
VENEZUELA
Politics – Elections
More and more voices are being heard demanding free and verifiable elections in Venezuela. The Norwegian delegation returned to Venezuela with its role as facilitator. The Norwegians sent their chancellor, Andreas Motzfeldt Kravik, to try to rescue their reputation — by the way, quite battered by repeated failures.
One of the most relevant voices is that of the US government, which demands compliance with what was agreed in Barbados. The US, having in its hand the most forceful way to pressure the regime, the non-renewal of OFAC License 44, has not shed light on what it is going to do. With just 10 days left until L-Day, April 18, the White House is either still playing a behind-the-scenes negotiation or they simply don't know what to do: white smoke and black smoke simultaneously. Some insist that the US will follow through on its repeated threat to suspend the licenses, as different spokespersons for the Biden administration have warned since the regime decided to abandon its Barbados commitments. Others argue that being so close to the presidential elections, and with relatively low popularity, Biden is not going to rock the bottom of relations with Venezuela due to its potential impact on oil prices, immigration, and other geopolitical variables; an explanation that in light of today's oil prices seems credible, although quite unfounded in the short term.
Meanwhile, the regime has received incremental income of nearly $700 million from sales of crude oil and products at better prices, especially to India. It has also managed to prevent the gasoline and diluent shortage from getting out of hand, something relevant when trying to captivate lost followers. Moreover, the renewal of license 44, or some version of it, presents the possibility of attracting additional oil activity to Venezuela, which would only have post-election material benefits, if any. But would be seen by the regime as another political victory, something that the White House should also be pondering.
For now, the regime is limited to increasing public spending, especially the coverage of the CLAP Funds and their content, and meddling with the electoral process, avoiding the participation of the true opposition concentrated in the PUD. Very limited access to new registrations in the electoral registry is maintained, especially abroad, torpedoing the participation of Venezuelans living abroad. Furthermore, the regime keeps trying to divide the opposition and push it to abstain in the forthcoming elections.
The potential participants in the “mini opening” that may follow the continuity of License 44 appear to be quietly expectant in the face of uncertainty. For example, Shell is seeking a long-term license from the US before making a final investment decision in the Dragon natural gas project with the state-owned Trinidad company.
Although no one focuses on it, the electoral campaign is very of its kind. There are no mass acts, massive propaganda, or use of traditional media, which the regime reserves for its messages. Part of what international observers will surely report as democratic deficits.
Hydrocarbon Sector
Several shipments left during the last days of March, pushing exports to values comparable to February. Power outages continued in the west and center of the country, but in the east, the week's operations were not largely affected.
Production for March closed with an average of 772 Mbpd and last week it reached 777 Mbpd, distributed throughout the national geography, as follows:
• West 150 (Chevron 58)
• East 147
• Orinoco Belt 480 (Chevron 86)
• TOTAL 777 (Chevron 144)
Development drilling activities continue with a second well at PetroIndependencia, which in the context of the industry's investment debacle looks and is reported as big news.
Refining managed to process 165 Mbpd, after a disastrous month in fuel production, saved only by the import of gasoline. Considering a gasoline demand of about 130 Mbpd, the production of 26 Mbpd, and the import of 65 Mbpd, they still leave a gap that will necessarily have to be managed with rationing. This is carefully designed to avoid impacting the holders of the “Carnet de la Patria” and the electoral mobilization of the state apparatus.
The average crude oil export for March, after a rocky start due to electrical problems at the Jose terminal, averaged 598 Mbpd, including a Corocoro segregation cargo, unloaded from the Nabarima FSO in the Gulf of Paria, complemented by the export of 84 MBPD of products, mainly residual fuel, 60 Mbpd destined for Singapore and 24 Mbpd for Cuba.
The crude oil export destinations were China with 300 Mbpd, the US with 164 Mbpd, India with 92 Mbpd, and Spain with 42 Mbpd.
Energy Transition
Electric Vehicles – In need of recharging.
The British weekly “The Economist” dedicates an interesting article to analyzing the challenges that new electric vehicle (EV) companies face when competing with Tesla. The article, titled “Think Tesla is in trouble? Pity even more its wannabe EV rivals”[1], highlights how investors in the electric mobility sector have become more cautious due to unfulfilled promises and the recent slowdown in electric vehicle sales; starting from the disappointing numbers of TESLA, the patron saint of the electric car industry.
According to work by The Economist, several factors contribute to the low survival chances of electric car startups.
1. Production and launch challenges: Many electric car startups have faced difficulties in starting production and launching new models. Delays in production and launch can hamper your growth and survival in the competitive market.
2. High costs and capital requirements: Electric car startups often require significant capital investments to build manufacturing facilities, develop new technologies, and compete with established manufacturers. The high costs associated with market entry and the need for a continuous injection of capital can deplete new companies' financial resources.
3. Lack of scale and manufacturing capabilities: Scale and manufacturing capabilities are crucial in the automotive industry. Startups typically lack the scale and infrastructure to compete effectively with established automakers. The ability to produce vehicles on a large scale and efficiently manage the manufacturing process is essential for cost competitiveness and profitability.
4. Lack of differentiation: Many electric car startups struggle to differentiate themselves in the market. They may lack unique selling features or technological advancements that distinguish them from their competitors. This lack of differentiation makes it difficult for new companies to attract customers and gain a competitive advantage.
5. Intense competition: Established players like Tesla dominate the electric vehicle market. Players such as China's BYD are also beginning to gain a solid brand reputation and have a track record of success. Intense competition from these established players makes it difficult for newcomers to gain market share and compete effectively.
6. Market uncertainties: The electric vehicle market is subject to uncertainties, including changes in government policies, regulations, and consumer preferences. The recent slowdown in electric vehicle sales growth in some countries has increased market uncertainties. These uncertainties can make investors and consumers more cautious, affecting the survival prospects of startups.
Traditional companies, such as Ford, GM, and Stellantis, have the advantage of long manufacturing experience but are technological followers in this market sector. New players continue to emerge despite the difficulties, this is as expected as the certainty that not all will survive when the market consolidates. An example was Apple's recent announcement of abandoning its electric car initiative.
Finally, the recent slowdown in electric vehicle sales growth in many countries has also contributed to investor doubts. Uncertain market conditions and the possibility of declining demand for electric vehicles may make investors more cautious about investing in new entrants.
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