This past Sunday, the long-awaited Venezuelan presidential election took place in a framework of optimism, and hope, and, as many feared, plagued with arbitrariness and blatant electoral crimes by the regime and state institutions. The prohibition of entry to the international press and observers not aligned with the regime. The relocation of voting centers in almost all states, coupled with schemes to limit votes outside Venezuela, and countless other electoral tricks, have tainted not only the voting but also the manipulated result.
Once the polling stations closed, the CNE began interfering by not allowing the formally designated opposition witnesses into the totalization center in Caracas. While, at polling stations, the work of opposition witnesses was hindered, and the delivery of copies of the vote tallies obstructed. The combination of the two factors revived procedures from other elections in the past.
Exit polls from recognized companies agreed that Edmundo González Urrutia received around 60% of the votes, compared to a meager 30% obtained by Maduro; the images of citizens in the streets, plus the statements from the opposition leadership, reflected quiet triumphalism. However, during the night, there were signs that the regime was starting to play its cards to reverse the outcome of the votes. The Minister of Defense, General Padrino López, came out on national TV with language that clearly warned of what the high command expected from the CNE. Problems in obtaining the votes tally from polling stations multiplied for the opposition. At the stroke of midnight, after a tense wait, the president of the CNE, Elvis Amoroso, declared that with 80% of the voting tables scrutinized and with a "forceful and irreversible" trend, Nicolás Maduro had won the election with 5,150,092 votes, 51.20% of the vote. Meanwhile, Edmundo González Urrutia had only received 4,445,978 votes, 44.2%, with a very high turnout of 59%.
Immediately after, candidate Edmundo González Urrutia, accompanied by leader María Corina Machado, surrounded by a group from the opposition command, gathered the media. Machado stated:
"We want to tell all Venezuelans and the entire world that Venezuela has a new president-elect: Edmundo González Urrutia. This has been so overwhelming that we have won in all sectors of the country, in all social groups, and in all states.
We have more than 40% of the voting minutes. We have 100% of the vote tallies transmitted by the CNE. And all this information confirms that Edmundo González obtained 70% of the votes. It is the presidential election with the largest margin in history. When I say that everyone knows what happened here, I start with the regime itself, and they know what they want to do."
In summary, the opposition considers the election a fraud of gigantic proportions and is preparing, although it's unclear how, to defend its victory in Sunday's elections. The opposition called on the armed forces, the international community, and citizens to prepare for the defense of the result. It remains to be seen what resources the opposition will use to handle such a setback.
At the close of the press, several presidents in the region have expressed their doubts about the result announced by the CNE, as have the US, several European countries, and the European Union. As expected, the regime's allied governments, Russia, Nicaragua, Bolivia, Cuba, and others, were the first to express their support for Maduro for the result.
President Gabriel Boric of Chile was the first to denounce that the results were difficult to believe. The opposition and surely the voters are considering it as electoral fraud, reminiscent of what Venezuela's penultimate dictator, General Marcos Pérez Jiménez, manufactured on December 15, 1957, which led to his overthrow weeks later.
An initial reading of these events is that the recovery of the Venezuelan oil industry if the electoral fraud is consolidated, will be very uphill. Bad news for the regime, but good news for OPEC, Russia, shale oil, and others who have benefited from the incompetent handling of oil by Chavismo and its heirs over the last quarter-century.
MEANWHILE, DOUBTS ABOUT DEMAND OVERSHADOW THE OIL MARKET
The same elements that caused volatility in the oil market last week continued to wreak havoc this week. Concerns about Chinese demand, plus the continued threat of a potential recession, helped create a negative perception that the market digested, along with other fundamentals, pushing prices down.
This pessimistic sentiment could not be mitigated by objectively positive elements provided by demand and supply fundamentals in terms of inventory reduction and supply disruptions. Thus, crude oil futures retreated sharply on Friday due to a pre-weekend sell-off.
This behavior of oil prices left those who follow and invest in the oil market without a firm direction. However, in our opinion, this is a good time to invest well in the price of oil or in oil companies, which, we believe, are destined to recover their value.
FUNDAMENTALS
The physical oil market provided evidence indicating a very tight market. First, commercial crude inventories in the US continued to decline, and this week gasoline inventories joined the descent. Indeed, the Energy Information Administration (EIA) revealed a reduction of 3.75 MMBBLS in crude inventories, and a sharp drop in gasoline stocks of 5.5 MMbbl, compared to last week. Crude inventories, often incorrect in the EIA's weekly publication, must be seen in the context of the last few continuous weeks, which reveal a cumulative reduction of about 20 MMbbl.
Disruptions in production in Canada, reduction adjustments agreed within OPEP+ for countries that have exceeded their volumetric commitments, and declining production in Russia, Mexico, and the North Sea, for example, point towards an undersupplied market at least until well into 2025.
US GDP growth figures, well above expectations at 2.8% for the second quarter, should have lifted positive sentiment in the market, but, as we have already highlighted, these signals went unnoticed amid a generalized sell-off of technology stocks and news from China.
GEOPOLITICS
Traditional geopolitical risks, which have impacted the oil market recently, have come to be considered a backdrop, and their ability to make material changes that could affect the complex oil supply and demand system is being discounted. This perception of pseudo-normality applies, on the one hand, to the prolonged wars between Ukraine and Russia, as well as to the conflict in the Middle East between terrorist groups and Israel.
War activities have had their ups and downs. As recently as the last days of the week, Ukraine seems to have carried out two successful attacks, one on the Murmansk airfield, more than 1600 km from its borders, and another in Kursk; where they set fire to oil infrastructure, including a huge fuel depot. Ukrainian cities have been the target of numerous Russian drone attacks.
Similarly, in the Middle East, skirmishes between Hamas, Hezbollah, Houthis and Israel have continued. Hezbollah has launched an attack on the Golan Heights that caused several deaths and injuries. Israel will surely carry out a counterattack. Also, the activity of the Houthis, who represent the greatest possibility of causing problems in the distribution of oil products, increased in scale, after Israel attacked Houthi facilities in Yemen, in response to a previous attack by the rebel group on Israeli territory. In any event, regardless of the assessment that the oil market assigns to it, the event caused by Hezbollah has the potential to become a focus of escalation of hostilities.
Regarding the U.S. elections, scheduled for November, the scenario has become complicated with President Biden's withdrawal and the passing of the baton to Vice President Kamala Harris. Another process whose implications are too early to envision.
As things stand, the oil market seems to consider that the geopolitical risk component in oil prices has been reduced to practically zero. Myopia or reality?
PRICE BEHAVIOR
The oil market seemed to have found support in the crude and product inventory figures reported by the EIA mid-week, despite poor global macroeconomic performance. China not reaching its GDP targets, stagnant European growth and inflationary concerns in the U.S., partly related to higher-than-expected growth. The market moves in a sea of mixed feelings: on one hand, low Chinese growth will result in reduced demand, and on the other, sustained growth in the U.S. tends to maintain inflationary pressure. Therefore, the start of interest rate reduction could be postponed, which could generate an erosion of demand.
According to investment bank Goldman Sachs, investor sentiment leaned towards a bearish assessment of the risks of a new Trump presidency and that there would be a stronger dollar, which ended up fueling concerns about oil demand.
In any case, in our analysis, the market remains in a trend of higher demand than supply, so the fundamentals would support an increase in prices. This should be above $85/bbl in terms of Brent Crude and without a political risk premium. But nothing could prevent prices from falling to levels not seen since June of this year, and another consecutive week of losses.
As things stand, the benchmark Brent and WTI crudes at market close on July 26 were trading at $81.13/bbl and $77.16/bbl, respectively.
VENEZUELA
Oil operations
The drilling activity in the country remains at 4 drilling units. Crude production shows a slight increase due to the reduction of deferred production in the joint venture PetroQuiriquire, in the west of the country. Meanwhile, refining retreated due to problems at the Cardón refinery.
The week's production averaged 812 Mbpd, geographically distributed as follows:
• West 179 (Chevron 72)
• East 141
• Orinoco Belt 492 (Chevron 100)
• TOTAL 812 (Chevron 172)
Chevron continues its drilling activity in PetroIndependencia: currently completing the ninth well of its planned campaign. A second rig is scheduled to start operations in September.
The refineries processed 235 Mbpd of crude and intermediate products. Gasoline production reached 73 Mbpd, while diesel production remained at 78 Mbpd. Long queues at service stations were observed during the days before the elections.
Exports scheduled for July indicate a volume similar to that of June, approximately 657 Mbpd of crude and about 64 Mbpd of products."
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