The week passed with news of robust Chinese oil purchases for their inventories, a drop in US crude inventories, fluctuations in supplies, and the opening of hurricane season in the Gulf of Mexico. These were all news that pushed upwards the oil market. On the other hand, the renewed action of Yemen's Houthis against the normal functioning of shipping in the Red Sea, and Ukraine's continued and successful attacks on Russian oil infrastructure, combined to add geopolitical pressure to oil prices.
FUNDAMENTALS
The growth of oil supply, which was already giving ground to the increase in demand, must face a hurricane season in the Atlantic that is projected to be very active. Indeed, this week, Alberto became the first tropical storm of the season. The storm system made landfall in the northeastern regions of Mexico, causing heavy rain that temporarily disrupted oil operations in Corpus Christi, Texas; The effects of the rains and winds were felt as far as Beaumont. A second tropical depression has been identified and has all the characteristics of reaching the Gulf of Mexico as it feeds of the regional warm waters and if it materializes it would be called Beryl.
In the US oil sector, production levels appear to stagnate around 13.0 MMbpd, because of declining drilling activity. Baker Hughes reports that this week there was a new reduction (-2) in the list of active drills. The number of wells drilled but not completed (DUC) remains constant at around 4,500, a sign that operators remain on guard.
The demand for oil and products seems to be responding to the increase in the displacement of light vehicles, typical of the summer months in the US and evidenced by a drop in inventories of both crude oil and gasoline. Commercial crude oil inventories, published by the EIA , showed a contraction during the week of 2.64 MMbbls and gasoline inventories of 2.3 MMbbls.
Meanwhile, news regarding Russian production remains enigmatic. The Energy Ministry said Thursday that its oil production in May exceeded quotas established by OPEC+, without providing production figures, and pledged to meet its obligations to the cartel. Unofficial sources place Russian production within the agreed levels, at 9.1 MMbpd. We suspect that the ministerial statement is primarily aimed at dismissing the effect of Ukrainian attacks on its oil infrastructure.
OPEC+ remained discreetly silent during the week, satisfied that the negative reaction to its announcements at the beginning of June had been overcome, and reaching agreements to adjust the commitments made by both Iraq and Russia. In some OPEC countries, interruptions in production operations were experienced. The most relevant was the closure of at least 50 Mbpd by the Nigerian company AITEO, when leaks were detected in the Nembe swamp, in the pipeline that connects with the Bonny Light crude oil export terminal.
Brazil, one of the countries identified in the forecasts of the International Energy Agency (IEA), as a contributor to the increase in global supply, has been a victim this year of the decline in its production. Since January, its production has declined more than 5%. Similarly, in Colombia, the decline is noticeable in both oil and natural gas production, a combination of the restrictive policies of President Petro's government, and the relative low prospectivity of the basin.
These production erosions underline the limited capacity of the current crude oil supply to close the gap (1.3 MMbpd according to our calculations) with growing demand, which is already close to 104 MMbpd.
GEOPOLITICS
Conflicts in the Middle East and Europe continue, despite attempts to establish ceasefires through diplomacy; However, contacts continue.
In Russia's confrontation with Ukraine this week, despite continued Russian bombing of civilian targets and infrastructure in eastern Ukraine, the balance appears to be beginning to tip towards the Ukrainian side. The combination of Western military equipment and Ukrainian prowess has managed to inflict damage on refineries and fuel depots on Russian soil, as well as to the Russian fleet stationed in Crimea. This is an effort to slow down the Kremlin's war machine. Damage to terminals and refineries and the volumes of oil and fuel incinerated in the attacks, are affecting Russia's ability to supply the army on the battle fronts, also affecting export levels. The Russian military is pressing hard along the front line in eastern Ukraine, where a shortage of Ukrainian troops and ammunition has left defenders vulnerable.
In the Middle East, Israel continues to hit Hamas facilities in Rafah, southern Gaza. The fierce defense that Hamas is opposing to the final seizure of this stronghold, points to the relevance of this enclave for the terrorist organization. As if the war between Israel and Hamas were not enough, it appears that a confrontation between Israel and Lebanon's Hezbollah group is taking shape. A full-scale confrontation between Israel and Hezbollah could directly involve Iran, currently distracted by the death of its president, which would have potentially significant effects on the oil market.
The oil market is also being impacted by the dysfunctional management of shipping in the Red Sea because of the continuous attacks by Yemen's Houthi rebels: this week they sank a bulk ship.
All this activity on the war fronts, with no clear exit, is once again increasing the geopolitical risk, putting upward pressure on prices.
In other news
· India's oil imports from Russia hit a record high of about 2.1 million barrels per day (bpd) in May, driven by widening discounts on Russian oil due to declining demand from China.
· By contrast, imports from Saudi Arabia plummeted to a 10-month low, due to Saudi Aramco's decision to raise forward prices for the second consecutive month in May.
· Citibank predicts oil prices will plunge to the $60 range by 2025 as inventories build after a tight market this summer, signaling a bearish outlook despite current strong demand and higher prices. Most banks expect oil prices to remain above $80 a barrel this summer and decline in the fourth quarter and early next year to the $70 range.
· The US Senate overwhelmingly approved a major bill on Tuesday, June 18, to make it easier, cheaper and faster to allow and build new nuclear reactors. The ADVANCE Act, which passed with only two senators voting against, is now waiting for President Biden's signature, which he is expected to do. For many, a decision in the right direction
PRICE BEHAVIOR
Oil price benchmarks were headed for a second week of solid gains, with Brent Crude rising nearly 4% since last Friday. Prices reached levels not seen since the end of April of this year, because of the combination of supply limitations, increased demand, and nervousness generated by events on the war fronts. Thus, at the close of the markets, on Friday, June 21, the Brent and WTI crude markers were trading at $85.24/bbl and $80.73/bbl respectively.
VENEZUELA
The Game of Snatch Politics
The projections for the upcoming vote do not look favorable to the regime's candidate. Some polls show up to more than 30 points of difference in favor of the opposition candidate. The regime, contrary to what has characterized it on other occasions, is on the defensive, taking uncreative measures.
This clear threat to the future of the regime is an incentive for Maduro and his cadre to begin deploying tactics that allow him to remain in power. This week, for example, a deputy from the so-called judicialized COPEI filed a constitutional protection measure before the Supreme Court of Justice. The measure asks to suspend the elections while there are sanctions in effect against members of the executive or the government. On the other hand, Jorge Rodríguez, president of the National Assembly, proposed that the presidential candidates sign a document committing to accept, before the fact, the results of the elections. The president of the National Electoral Council, Elvis Amoroso, responded quickly to the “suggestion,” and organized a “show” with the attendance of Maduro and some minority candidates. They signed a document that was barely delivered to them at the time of signing.
Edmundo González Urrutia, the main opposition candidate, did not attend the event, arguing that he had not received any invitation from the CNE, and that this type of agreement was already contained in the Barbados agreement. He added that he had no intention of attending a meeting under duress. González Urrutia insisted that the recognition of the results of the Venezuelan presidential elections is contemplated in point 12 of the agreements on electoral guarantees signed in Barbados. These had been violated by the government by revoking the invitation to the Observation Mission of the European Union, and by increasing the persecution against opposition leaders and sympathizers. Enrique Márquez, another opposition candidate, did not attend either.
Elvis Amoroso, in a flagrant contravention of the due impartiality of the CNE, declared that the failure of González Urrutia and Márquez to sign the agreement shows “who is on their knees to other interests that are not those of Venezuela; What this indicates is that they want to ignore, destabilize and sabotage this electoral process, with or without them there will be elections on July 28.” Some analysts suggest that this may be a preamble to the sanction of these candidates and the elimination of their voting cards.
At the last minute, a CNE resolution was announced modifying the rules for the participation of witnesses at polling stations. It was established, for the first time, that witnesses must be registered at the voting center where they will perform their duties. This is an additional obstacle that the opposition must overcome to defend the votes on election day.
The economic aspect also did not bring joy to the regime and its intentions to perpetuate itself. To stabilize the exchange rate around 40 Bs./$, they had to inject a greater amount of foreign currency than what is usual. This is at a time when income from hydrocarbon sales is faltering, which is the result of the replacement of OFAC licenses on export. Consequently, a reduction in public spending was recorded, precisely when the campaign was in full swing.
Hydrocarbons Sector
Baker Hughes reports 3 active drilling rigs in the country, a figure that continues to underline the fragility of the industry. PetroIndependencia, PetroMonagas and PetroVictoria are the joint ventures where these units operate - in the previous edition we had erroneously reported PetroMiranda, but PetroVictoria is the correct information. Chevron completed the seventh well at PetroIndependencia and is beginning the process to incorporate a second rig into its operations.
Production last week averaged 790 Mbpd, like the previous week and distributed geographically as detailed below:
· West 169 (Chevron 67)
· East 141
· Girdle 480 Chevron 96)
· TOTAL 790 (Chevron 163)
Refining activity showed a reduction because of operational problems at El Palito, which translated into a reduction in load at Cardón; The El Palito refinery's feed is vacuum gas oil (VGO) supplied from the Cardón refinery. The average processing for the week was 222 Mbpd, crude oil and intermediate products. Gasoline production reached 70 Mbpd while diesel production remained at 73 Mbpd, again reducing the volumes supplied to the domestic market. The shortage of gasoline in the State of Barinas, during Maduro's visit, earned Minister Tellechea a slap on the wrist.
The export of the month continues to point towards average crude oil export of 630 Mbpd for June, with a similar composition to previous weeks.
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