ISRAEL AND IRAN – CONTROLLED RETALIATION

 El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

In a week full of uncertainty around the long-awaited, although unpredictable, Israeli attack on Iran, oil prices recorded a weekly gain in the wave of geopolitical risk. But just hours after the markets closed, the doubt was clarified. In the early morning of Saturday, October 26, Israel launched an air attack on the outskirts of the Iranian capital, dubbed “Days of Repentance,” referring to the recent Yom Kippur holiday. In principle, the attack avoided damage due to strong international pressure, oil or nuclear facilities. This geopolitical development, if the current situation is maintained, coupled with an increase in US commercial crude oil inventories and a strengthening of the dollar, put downward pressure on oil prices; when the markets opened this Monday, prices showed a severe drop, of almost $4/BBL. However, as the US presidential elections approach, and with the two candidates close in the polls, the market will be exposed to the most varied speculations about the scenarios in the convulsive Middle East region and the war in Europe. The results of these elections will also weigh on the political crisis in Venezuela, which continues without an urgent resolution.

 

Geopolitics

The expected Israeli retaliation for Iran's recent missile attack began in the early hours of last Saturday. The Israel Defense Forces (IDF) attacked Iran in three waves in the early hours of this Saturday. The operation began with the report of five powerful explosions in Tehran and in a nearby city, Karaj; then, two additional waves followed. After three hours, the Israeli military spokesman, Daniel Hagari, announced the end of the attacks, which he defined as “precise” and aimed “at military targets in response to months of continuous attacks.” This last phrase is important, as it qualifies the attacks as a response, not only to the missile attack of early October but within the context of the attacks on Israel by Iran's proxies.

 

The scope of the attacks and the damage caused remain unclear at this stage. The IDF said it hit around 20 targets, including missile production facilities, surface-to-air missile launching bases, and other military sites. According to Israeli sources, the attacks materially reduced Iran's ability to manufacture missiles.

 

The authorities confirmed that the targeted objectives were in the provinces of Tehran, Khuzestan, and Ilam and stated that the country's air defenses had “successfully intercepted” the attacks but that “some areas suffered limited damage.”

 

The Syrian State News Agency (SANA) has also reported attacks on military facilities in the south and center of that country. The countries of the region closed their airspace during the Israeli attacks. The Tehran authorities acknowledge the death of four soldiers and “limited damage” while announcing a “proportionate reaction.” It is unlikely that there will be a reaction from Iran soon, apart from the terrorist attacks perpetrated by its terrorist organizations in the region; the statements of the Iranian leadership seem to indicate this.

 

In parallel, on Saturday morning of the Jewish Sabbath, a massive explosion rocked southern Lebanon as the IDF demolished a large underground base of Hezbollah's military unit known as the Al-Hajj Radwan Force, using 400 tons of explosives. The explosion was so powerful that it triggered earthquake detectors across northern Israel. Al-Hajj Radwan's mission is to infiltrate Israeli territory, with special attention to Galilee and northern Israel.

 

In the confrontation between Russia and Ukraine, there have been few changes. Russian pressure in eastern Ukraine has achieved certain advances, but at a high price in terms of lives and armaments. Meanwhile, Russia continues its drone attacks; this past week, Kyiv was the target of at least 60 drones. Ukraine has limited itself to inflicting damage on military and energy facilities on Russian territory to try to fracture the supply chain to Russian troops. The most publicized news in this conflict is the presence of North Korean military contingents in Russia, allegedly ready to be deployed to the front, according to a denunciation by Ukrainian President Zelensky.

 

In the Russian city of Kazan, the BRICS summit was held during the week, the first by this group of emerging economies after its expansion from five to nine members last January. The goal of the alliance is to challenge the economic and political monopoly of the West. The group sets priorities and holds debates once a year during the summit, which the members take turns organizing. 

 

At the opening of the meeting, before a small group of representatives, Russian President Vladimir Putin remarked: “Now, in this restricted format, we propose to consider the most relevant aspects of the global agenda, exchange views on the topic of cooperation between BRICS states in the international arena, including the resolution of acute regional conflicts.”

 

Brazilian President Lula da Silva attended via videoconference as he is resting due to a fall. Saudi Arabia, which has not confirmed its accession to the group, was represented by its Minister of Foreign Affairs. Saudi Crown Prince Mohamed bin Salman decided not to attend the summit. Subsequently, it was learned bin Salman had received the US Secretary of State in Riyadh. Argentina confirmed that it was withdrawing its application to join the BRICS.

 

At this meeting, it was news that China and India smoothed over their differences and reached certain agreements related to the hot border between the two countries. Let us remember that these two countries have the largest populations in the world, and together, they import more than 15% of global oil production. Moreover, Chinese President Xi reiterated the need to seek a negotiated solution to the Russia-Ukraine conflict. In any case, the BRICS group continues to seek strategies to materialize its goal of counteracting the economic and political weight of the West.

 

In the US, less than 10 days from the presidential election, polls agree that the result is “too close to call,” although the Republican candidate, Donald Trump, seems to continue reducing the lead that Kamala Harris enjoyed just three weeks ago. This trend has been fueled by Harris's lack of exposure in uncontrolled environments; the editing that the CBS network made to the interview with the vice president, apparently to eliminate content that did not favor her, is cited as an example of the media weaknesses of the Democratic candidate. In contrast, Trump's sometimes eccentric statements in the same type of environment do not appear to diminish his support.

 

The election is being cast as a clash of religion, gender, and generations, and with extreme positions on important issues for the American electorate, such as immigration, abortion, and the economy, but with little analysis of specific policies. 

 

Fundamentals

 

Oil production in the US had little variation: around thirteen million barrels per day (13.5 MMbpd according to the EIA), but with a tendency to increase with the commissioning of a gas pipeline that allows the evacuation of natural gas from the Permian region; crude oil production in this basin has to be optimized based on natural gas production due to pipeline limitations that connect it to the markets. 

 

According to Baker Hughes, rig activity remained flat. Commercial crude oil inventories, reported by the Energy Information Administration (EIA), showed a larger than expected increase, some five million five hundred thousand barrels (5.5 MMbbls), partly due to higher imports and constant refinery runs. Gasoline inventories also showed an increase of about nine hundred thousand barrels (900 Mbbls), while distillate inventories fell by two million one hundred thousand barrels (2.1 MMbbls).

 

OPEC+ will have to decide in the next two weeks whether to proceed with the announced production increases, which will add around one hundred and eighty thousand barrels per day (180 Mbpd) at the beginning of December and well over two million barrels per day next year. A volume that, in our opinion, is difficult to materialize, but an announcement that would signal the market.

 

In summary, with an oil demand of around one hundred and three million barrels per day (103 MMbpd) and no foreseeable increases in supply apart from those of OPEC+, the physical oil market will continue in a precarious balance. It is becoming increasingly evident that the lack of transparent information on inventories and available production capacity is not healthy for the efficient behavior of the market.

 

By 2025, the production increases scheduled in Brazil, Guyana, Canada, the US, Argentina, and OPEC+, which would be partially offset by declines in the North Sea and Colombia, could reverse the situation towards a well-supplied scenario. On the other hand, concerns about the slowdown in demand growth, mainly centered on China, continue to be a drag on the market.

 

Price Behavior

The tense wait for the Israeli reaction to the Iranian attacks kept the market with even greater volatility than usual. Prices briefly wavered midweek after data showed a rise in US inventories, but this was quickly overcome by geopolitical events, which eventually were less severe than the market's expectation.

 

So, Brent and WTI crudes, at the close of the session on Friday, October 25, were trading at $76.5/bbl and $71.78/bbl, respectively, closing the week with a 4% gain over the previous week. However, given the Israeli counterattack over the weekend and the Iranian reaction, this Monday, October 28, market players reduced the geopolitical risk premium, which has also not been very high. Brent and WTI crudes opened the session trading at $72.5/bbl and $68.6/bbl, respectively, a reduction of almost 5% compared to the previous close.

 

VENEZUELA

 

The BRICS lifeboat capsized

 

The trip of Nicolás Maduro and Delcy Rodríguez to the BRICS summit in Kazan, Russia, was the main distraction of the regime during the week. The trip of the couple perhaps sought to obtain resources for the battered Venezuelan economy and to achieve some kind of international recognition in the face of the regime's growing isolation.

 

An unwanted consequence of the trip is that it made the country think about who was in charge in Venezuela, perhaps underlining the rumor that power now resides in Minister Diosdado Cabello. Despite the photos Maduro took with Putin, Xi, Erdoğan, and Mahmud Abas, the result was discouraging for the regime. A camera shot showed Putin pointing out to the Venezuelan that he was going to the formal session and that Maduro should follow a different path. However, Maduro did manage to participate in the group’s expanded meeting, which Putin used to garner support for his position versus the West.

 

The worst outcome for Nicolás Maduro was President Lula’s unyielding position to veto Venezuela's entry into the BRICS group. The regime reacted by comparing Lula to former president Bolsonaro, who had also opposed Venezuela's entry.

 

María Corina Machado and Edmundo González Urrutia won the prestigious 2024 Sakharov Prize for Freedom of Conscience, awarded by the European Union. This award is given in recognition of their struggle for democracy. Undoubtedly, it is an award that seeks to rally support for the very besieged Venezuelan opposition and adds to the recognition the European Parliament has already given to González Urrutia as the elected president.

 

The regime has been forced to review its economic policies. It seems to have abandoned the concept of exchange rate anchoring, allowing the value of the official dollar to slide beyond 40 bolivars per dollar. This seeks to reduce the gap with the parallel dollar, which reached up to 27% and threatens a rebound in inflation; the parallel dollar is the reference used to restock commercial inventories. The regime bets on curbing inflation and devaluation by injecting large sums of dollars into the exchange market. It has also taken repressive measures recently through inspections of businesses to ensure that sales at the official rate are respected; there are known cases of arrests of people for selling foreign currency at a parallel price.

 

The regime has also been forced to reduce its expectations regarding the level of public spending. A reduction of more than 25% is observed in the final months of the year, which traditionally correspond to the highest months in public spending: perhaps this is what Maduro was referring to with the advance of Christmas. All these revisions to the economic policy of the past year are becoming a greater brake on the economy. The only solution to this mess is the increase in the availability of foreign currency, which is not under the control of the regime and its central bank but of a drowsy oil industry.

 

Without the support of BRICS and Western developed countries, the isolation is becoming a straitjacket that is, among other things, widening the Chavismo’s internal fractures.

 

Oil Operations

The only event to highlight for the week is the shutdown of the naphtha reformer at the Cardón refinery in Paraguaná, which severely affects gasoline production.

 

The average crude oil production during this last week was eight hundred and fifty thousand barrels per day (850 Mbpd), distributed regionally as follows:

 

• West                                     195 (Chevron 89)

• East                                       138

• Orinoco Belt                  517 (Chevron 112)

• TOTAL                                 850 (Chevron 201)

 

The heavy crude upgrader of the Joint venture PetroPiar, the only one in operation of the four existing in Jose, produced 82 Mbpd of upgraded Hamaca crude.

 

The level of processing of the national refineries stood at 183 Mbpd of crude and intermediate products, with a yield in terms of gasoline and diesel of 50 and 72 MBPD, respectively. The drastic reduction in gasoline production will cause greater scarcity in the domestic market.

 

Crude oil exports in October appear to be on track to exceed 600 Mbpd. The crude export program to the US and Europe by Chevron and Repsol is being fulfilled as scheduled.

 

CITGO

In what appears to be a renewed disinformation and distraction campaign from the Venezuelan crisis, the National Assembly published a “report” about CITGO. In the report, they seek to hold members of the 2015-2020 National Assembly (AN2015) and a large group of Venezuelans responsible for what they describe as the “biggest theft in Venezuela’s history,” referring to CITGO. The infamous report has been taken to the prosecutor's office with the declared purpose of establishing persecution against more than three hundred Venezuelans.

 

The reality is entirely different. Five years of legal and political efforts by the AN2015 and a team of professionals have prevented the loss of that asset: CITGO is still the republic’s property. This effort has been the only thing that has protected that asset from the claims of PDVSA's multiple creditors and the republic. The regime has lacked the will or the capacity to seek solutions to the debts they incurred, which is the reason for the current CITGO crisis and the destruction of PDVSA.

ISRAEL POSTPONES RETALIATION AGAINST IRAN, PRICES DECLINE

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 ISRAEL POSTPONES RETALIATION AGAINST IRAN, AND PRICES DECLINE

The oil market remains cautious while awaiting the outcome of negotiations between the U.S., Israel, and other countries regarding the type of military response Israel will give to the Iranian attack earlier this month. Initially, it is said that the U.S. wants to avoid targeting nuclear or oil facilities, leaving only military objectives as possible targets. But it's not just the oil supply that's at stake; the supply of natural gas is also a subject of concern due to the situation in the Persian Gulf, and this week, we look at it.

 

In Venezuela, the political crisis continues to simmer, including the removal of high-ranking officials, among them the former president of PDVSA, Colonel Tellechea. The crisis has yet to visibly affect the reduced oil operations to which the regime seems to be getting accustomed.

 

INTERNATIONAL

The world has taken a break from geopolitical tensions, seeming to trust that the potentially disruptive effects on energy flow will not materialize, even though warlike activities have not been suspended on the two most serious war fronts. On the contrary, attacks and troop movements have intensified and become more complicated by the presence of troops from multiple countries. However, the event that is most likely to induce an interruption in the flow of oil and gas, Israel's retaliatory attack on Iran, has been avoided for now or rather postponed.

 

In addition to this atmosphere of uncertainty, Kristalina Georgieva, head of the International Monetary Fund (IMF), in her statements on the eve of the IMF's semi-annual meeting, stated that: “the great wave of global inflation is receding. A combination of decisive monetary policy action, easing of supply chain constraints, and moderation of prices…” However, Georgieva also warned that: “Medium-term growth is expected to be mediocre, not much lower than before the pandemic, but far from being good enough. It is not enough to eradicate global poverty, nor to create the number of jobs we need…” all topics that impact energy issues, including the financing of the transition.

 

Geopolitics

The main concern of the countries neighboring the Persian Gulf is the potential closure of the Strait of Hormuz by Iran's initiative. About 20 million barrels of oil, products, and liquefied natural gas (LNG) transit daily through this strait. Both Iran and Saudi Arabia are actively preparing their terminals outside the Strait of Hormuz: the Jask terminal in the Gulf of Oman and the Yanbu terminal in the Red Sea, respectively, although the capacities of these terminals only allow handling a fraction of total exports. The United Arab Emirates and Oman can also export crude, about 2.5 million barrels per day (MMbpd), from their terminals in Fujairah and Muscat, respectively, both in the Gulf of Oman. All the liquefied gas coming from Iran and Qatar must necessarily pass through the Strait of Hormuz to reach its destination.

 

Indirectly related to these preparations, the U.S. bombed Houthi positions in Yemen to reduce navigation risks in the Red Sea, through which part of the crude loaded in Yanbu would exit.

 

The war front in the Middle East has been very active. In a military action in the city of Rafah in Gaza, Yahya Sinwar, leader of Hamas and “mastermind” of the October 7 attacks against Israel, was taken down. The event, according to some sources, could facilitate negotiations to obtain the release of the remaining hostages and even a light at the end of the tunnel for the end of Israel's war against Hamas. However, Israel has been cautious in its announcements. In ground attacks in southern Lebanon, other Hezbollah leaders have been eliminated by the Israeli Defense Forces (IDF).

 

In Syria, the security situation is becoming murky with the presence of the Islamic Revolutionary Guard Corps (IRGC). Russian troops around Deir Ezzor airport demanded that the IRGC withdraw from the area, where troops loyal to the Syrian government are also present. Israel has intercepted several drones and missiles launched from Lebanon, Iraq, and Syria, including one that fell near Prime Minister Benjamin Netanyahu's residence.

 

On the Russian invasion of Ukraine front, the presence of North Korean troops and weaponry actively participating in the confrontation is reported. A contingent of 1,500 soldiers is already in Russia, and the figure could increase to 12,000, according to the South Korean spy agency. This occurs while evidence increases that North Korea is supplying munitions to Russia, as recently demonstrated by the recovery of a missile in the Poltava region in Ukraine. NATO representatives warned that North Korea's presence in the Russian invasion of Ukraine represents a serious expansion of the conflict.

 

In the U.S., the presidential elections are in the final stretch, in a very tight contest. The latest polls seem to indicate that Vice President Harris's precarious lead is shrinking. Many geopolitical decisions around the world are waiting for the outcome of these elections.

 

Fundamentals

It is useful to include, in the analysis of the energy market, the issue of natural gas as another aspect to consider. In previous articles, we have analyzed the behavior of the global economy and energy market through the oil prism, and to a lesser extent, we have referred to the contribution of natural gas. On particular occasions, such as the supply of Russian natural gas to Europe and when prices have caused changes between liquid and gaseous hydrocarbons, we have touched on the subject.

 

The reality is that both energy sources, oil and natural gas, are important, each with its merits, and together represent, today and in the foreseeable future, more than 50% of primary energy consumption. Although crude oil demand will tend to stabilize, natural gas will grow organically. The growth in demand and use of natural gas is because it is a very flexible fuel with lower emissions than coal and oil, and it presents itself as the backup fuel par excellence for the intermittency of other renewable energy sources in the face of the rise of electrification.

 

Natural gas reserves, as in the case of oil, are found in a handful of geographic regions, commonly coinciding with oil regions, not coincidentally, but because their origin is the result of analogous geological processes in the same sedimentary basins. As in the case of oil, large natural gas developments are not necessarily proportional to the presence of resources, and, therefore, the major suppliers are not the same as those holding the largest reserves.

 

In any case, the figures indicate that Russia and the Middle East are today’s main protagonists not only in production but also control an important part of the world's gas reserves.

 

We can also conclude, seen in the context of the next 25 years, that enormous investments will be required, both in oil and natural gas, to maintain supply to the world economy. Likewise, as evidenced in the case of Europe after Russia's invasion of Ukraine, changing from pipeline supply to LNG (liquefied natural gas) tanker supply requires expensive infrastructure at both ends of the purchase/sale transaction, which makes it even more important to secure the navigation routes of that supply line.

 

Looking back at oil, U.S. oil production remains around 13 million barrels per day (MMbpd), and natural gas production at 103,500 million cubic feet per day, somewhat lower than expected, due to limitations imposed by the Biden administration on liquefied gas exports, which affect the profitability of shale gas developments. After Russia invaded Ukraine, the U.S. became Europe's largest LNG supplier.

 

The movement of active rigs is also stagnant, according to Baker Hughes. Both rigs developing natural gas because of low prices, and those dedicated to oil, due to financial discipline, have not shown increases in activity despite winter approaching in the Northern Hemisphere with higher seasonal gas consumption.

 

According to the Energy Information Administration (EIA) report, commercial oil inventories decreased by 2.2 million barrels. Gasoline inventories also decreased by 2.2 million barrels, reflecting lower crude imports and exports and lower refining runs, pointing to stable demand. Natural gas inventories increased by 76 billion cubic feet compared to last week and remain at average levels for this time of year. Meanwhile, the European Union's (EU) natural gas inventories, facing winter, are already at 90% of what's required; like last year, the target was reached ahead of time.

 

In economic news, China's economic growth was 4.6% in the third quarter of 2024, lower than expected, although refining activity increased with the completion of major maintenance after several consecutive monthly declines.

 

As soon as the data for the economic slowdown in the third quarter was published, the People's Bank of China released more details of its measures to boost capital markets. The bank's governor, Pan Gongsheng, pointed to the real estate and stock markets as key economic challenges requiring specific policy support. Indeed, while industrial production and retail sales increased and exceeded expectations, the real estate sector remained mired in a slowdown.

 

In Europe, the European Central Bank (ECB) reduced interest rates by 25 basis points. It's the third time this year that rates have been reduced. The measure reduces the rate the ECB pays on bank deposits to 3.25% from 3.5% and is the first consecutive interest rate cut in 13 years.

 

For its part, OPEC+ has remained silent, also expectant of events between Israel and Iran, while maintaining production in September close to agreed levels, but with the help of temporary closures in Libya. By the way, although Libya's production has been restored, rumors indicate that Farhat Bengdara, chairman of the board of the Libyan state company, has submitted his resignation to the interim prime minister of Libya's Government of National Unity (GNU) in Tripoli, Abdulhamid Dbeibah. Bengdara was recently appointed after an agreement between the country's two rival clans, Dbeibah's, representing the western government, and General Khalifa Haftar's, representing the eastern rival government. It is speculated that one of Haftar's sons could replace Bengdara, which, if true, could rethink the governance crisis.

 

Latin America is issuing an interesting combination of contradictory news. On one hand, the new Mexican government has decided to reduce Pemex's investment budget in its upstream activities by $1.4 billion for the last quarter of 2024. Although they mention that the effect of this reduction would only result in a production reduction of less than 6,000 barrels per day (6.0 Mbpd) for the last quarter, our estimate indicates that, although almost half of the cuts correspond to activities not generating production potential, the reduction will be closer to 63 MBPD. The newly inaugurated Mexican president, Claudia Sheinbaum, indicated that the company's production would be limited to 1.8 MMBPD in 2025, compared to 1.75 MMBPD in 2024, but a considerable reduction from the medium-term plans.

 

On the other hand, the Argentine state oil company, YPF, is achieving important milestones in Vaca Muerta, reaching a production of 388,000 barrels per day in the first half of 2024, 20% more than in the same period last year, more than compensating for the drop in production in Mexico. Likewise, in terms of natural gas, it averaged a production of 558 million cubic feet per day (558 MMcfd), 11% higher than in 2023.

Further north, Colombia is experiencing a severe drought, which is affecting water availability and electricity generation. As a consequence, natural gas prices are soaring, but not its availability, despite some news of discoveries, but which do not have the entity to change the balances, for now.

 

Finally, two potential hurricanes threaten the Gulf of Mexico. Nadine, currently near the coast of Belize, and Oscar, moving towards the Bahamas and Cuba. Both could cause interruptions in oil and gas activities in the Gulf of Mexico.

 

Price Behavior

Oil markets have stagnated since the contract liquidation earlier in the week, which occurred after reports that Israel had given assurances to the U.S. that it would not attack Iran's oil facilities. However, the market has not forgotten that there will likely be a retaliatory attack by Israel, but according to the Washington Post, it will be a series of surgical responses to military facilities.

 

This week, attention has also refocused on supply and demand fundamentals, with a weaker demand outlook due to China's economic situation, although the central government of that country is striving to solve the priority problems of its economy.

Market outlooks published by OPEC and the IEA this week suggested slower demand and a considerable supply surplus for next year, which keeps pressure on oil prices.

Thus, crude oil prices fell to levels not seen since early October, when geopolitical risk had not yet reflected Iran's attack on Israel.

 

From Tuesday to Thursday, crude oil prices moved little while investors sought a new direction, which they finally found on Friday when China's growth in the 3rd quarter was known: a new reduction in prices, closing the week with a strong loss.

The Brent and WTI benchmark crudes, at the close of trading on Friday, October 18, were quoted at $73.06/bbl and $69.22/bbl, respectively, a decrease of 7.5% compared to the previous week.

 

Meanwhile, gas prices at Henry Hub, the reference point in Louisiana for natural gas prices, fell from $2.49/MMBTU to $2.26/MMBTU, a decrease of 13% compared to the previous week, and significantly lower than prices in the European Union, which move around $15/MMBTU.

 

VENEZUELA

The regime retreats to its citadel.

 

The regime has decided that its best option in the face of electoral defeat and fear of internal fractures is to retreat and reorganize the leadership, a complicated process due to multiple interests and dubious loyalties within and between internal factions. Some say that the appointment of Diosdado Cabello as Minister of the Interior is part of this closing of ranks, mainly to prevent Cabello from taking power, keeping the enemy close seems to be the strategy. The “total transformation” in the Bolivarian National Armed Forces, ordered by Maduro, is also a delicate rearrangement of personnel. The two generals who managed the security agencies and who have supported the electoral fraud are removed, but the Minister of Defense is maintained; the new appointments are close to Minister Cabello.

 

The National Assembly appointed a new member to the CNE board to fill the vacancy left by rector Delpino, who was removed from his position after denouncing a serious “lack of transparency and truthfulness” in the questioned elections of July 28. Alex Saab is appointed Minister of Industries, replacing Colonel Pedro Tellechea.

 

Pedro Tellechea is the most recent addition to the long list of oil ministers or PDVSA presidents who have fallen from grace and have been “indicted.” This Monday, October 21, the attorney general's office confirmed the arrest of the former president of PDVSA and oil minister. He is accused of “serious crimes against the highest interests of the nation…”, which means everything and nothing. Most likely, like his predecessors, his case will fall into a judicial limbo where indulgences are not accepted, although being active military, Tellechea is probably a pawn in a more complicated game.

 

The newly appointed Minister for Oil, Delcy Rodríguez, announced the launch of the “National Petrochemical Revolutionary Patriotic Historical Block” as part of what she called the construction of the new economic model together with the workers. She continued mentioning: “We are in defense of the hope of our people, the other is the abyss, and we already know what it's about: delivering our resources to the hegemonic centers…”

 

In her continuous double discourse, Rodríguez forgets that it is the North American market and other “hegemonic” centers that are providing more than half of the foreign currency used to finance public spending and the attempt to try to reduce or maintain the gap between the official and parallel dollar.

 

The Economy

What the economic numbers reveal is that public spending is being cut, and SENIAT's collection is falling, probably an indicator of the contraction of the formal economy and a higher level of unemployment.

 

As we mentioned last week, the official dollar is being revalued. However, the gap between the official and parallel has not closed, a pernicious effect that, if not addressed, will fuel inflation. Foreign currency income is not growing, and current oil prices do not indicate a potential rebound. Therefore, interventions in the exchange market are insufficient to anchor the official dollar, given the inflationary environment being experienced.

 

 

Oil Operations

The French oil company, Maurel & Prom, in a press release, indicated that it was producing 7,100 barrels per day (7.1 Mbpd) in its block in the western part of the country, an increase of almost 1,000 barrels per day compared to the previous month. The operator forecast that by the end of the year, it would reach about 10 Mbpd, an unlikely level, as there are no active drilling rigs, nor is their arrival imminent. Repsol has continued with the maintenance program in the Tomoporo field on the eastern shore of Lake Maracaibo, and Chevron continues drilling one of the last wells of the 17 scheduled for this year.

The average crude production during this last week was 849 Mbpd, geographically distributed as follows:

• West                 195 (Chevron 89)
• East                  139
• Orinoco Belt      515 (Chevron 111)
• TOTAL              849 (Chevron 200)

 

The processing level of national refineries stood at 194 Mbpd of crude oil and intermediate products, with a yield in terms of gasoline and diesel of 61 Mbpd and 72 MBPD, respectively, insufficient to satisfy domestic gasoline demand, which continues to depend on imports.

October exports remain in line with the month's export plans of 660 BPD, partly to relieve the bulky inventories at the Jose terminal. PDVSA is probably thinking of sending fuel to Cuba to help solve the general blackout due to failures in the island's generation, but it is not scheduled yet.

 

In the La Salina tank farm in Cabimas, a fire occurred in a tank containing seventy-five thousand barrels of oil. Apparently, due to the lack of fire-fighting foam and not keeping the outside of the tank cooled, what is called a “boilover” occurred—a sudden boiling of water that expels the burning oil from the tank—which resulted in at least twenty workers with burns.

 

Natural Gas

The current production of natural gas is about 3,200 million cubic feet per day (MMcfd), of which about 700 MMcfd correspond to free gas, mainly from the Cardón IV Gas License offshore the Paraguaná peninsula and smaller volumes from deposits in Guárico state.

In northern Monagas, due to a lack of compression, injection, and treatment infrastructure, 1400 MMcfd are burned or vented. The petrochemical industry uses about 300 MMcfd to produce methanol and ammonia. The remainder of the production is dedicated to the national market, which includes the volumes consumed in oil operations, fuel for thermoelectric plants, and domestic gas.

 

Regarding methane gas prices in the country, they are officially set at highly subsidized levels – at a loss. The price of the gas produced in gas licenses is around $3.5/MMBTU, with the particularity that PDVSA has only paid a fraction of the gas delivered by ENI and Repsol, which increases PDVSA's bulky debt with ENI/Repsol companies.

 

Looking towards the future of natural gas in Venezuela, a necessary condition to develop the gas business to supply the domestic market and export gas to the international market is the setting of a market price that generates incentives for the producer and is affordable to the domestic consumer and competitive in the export market.

 

 

THE MARKET TAKES GEOPOLITICAL RISKS WITH A PINCH OF SALT

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

THE MARKET TAKES GEOPOLITICAL RISKS WITH A PINCH OF SALT

 

While the oil market anxiously observes the development of the conflict in the Middle East, Venezuela continues to be entangled in a political and economic situation without a clear destination still to be defined.

 

INTERNATIONAL

The much anticipated Israeli military retaliation, in response to Iran's missile attack in early October, has controlled the sentiment of the oil market, which assigns some probability to Iranian production and export facilities being affected. Although the attack did not materialize at the time of writing, it had already had tangible effects on global oil logistics.

 

On the other hand, although the latest storm in the Gulf of Mexico, Milton, a category 5 hurricane, caused considerable damage in Florida, it did not impact the oil industry. The global macroeconomy remains in a state of observation, waiting for inflation behavior: with a downward trend in Europe, but, in the US, a bit more stubborn than the Federal Reserve desires. Meanwhile, the economy of China remains weak. Oil prices have therefore remained between $78/bbl and $80/bbl, not reacting to Libya's return to the markets, nor the increase in commercial crude inventories in the US.

 

Geopolitics

All kinds of speculations were woven after Israel's security council discussed response options to Iran's missile attack, and Defense Minister Yoav Gallant said the nation's response would be lethal and surprising. October 7th, the anniversary of Hamas' incursion into Israel, was mentioned as a possible date for the attack; October 12th, the most important of Jewish holidays, Yom Kippur, was also considered, but the Israeli attack is still unexecuted.

 

The situation keeps countries with interests in the region on edge. The main concern centers on an attack on Iran's oil facilities, particularly the export terminal on Kharg Island, which could trigger a broader conflict and lead Iran to try to interrupt the flow of oil through the Strait of Hormuz: 30% of world oil production flows through this navigation channel.

 

The US sent a fleet of warplanes to the region. Saudi Arabia closed its airspace to avoid being perceived as collaborators with a potential Israeli attack. Russia, in the person of Putin, is making personal contacts with regional heads of state after meeting with his Iranian counterpart, Masoud Pezeshkian. In turn, China, the main or almost sole recipient of crude exported by Iran, is watching with concern a potential attack on the Kharg terminal and surely pressures through its diplomatic channels.

US officials believe that Israel has narrowed down on the possible targets of their response to Iran's attack, which these officials describe as Iranian military and energy infrastructure. There are no indications that Israel is targeting nuclear facilities or carrying out assassinations, but US officials emphasized that the Israelis have not made a final decision. For its part, the Iranian government is intensifying its diplomatic efforts with the aim objective that putting pressure from other countries will move Israel to minimize the scope of its response.

 

After weeks of intense diplomacy aimed at securing a ceasefire between Israel and Hezbollah militants, the US has opted for an entirely different approach: letting the ongoing conflict in Lebanon unfold. Now, US officials have abandoned their calls for a ceasefire, arguing that circumstances have changed. State Department representative, Matthew Miller, indicated that “We support Israel launching these incursions to degrade Hezbollah's infrastructure so that ultimately we can obtain a diplomatic resolution”.

 

For their part, the Houthi rebels remain active, launching missiles toward Israel, which were intercepted on the way, and continue with their somewhat random attacks on maritime transport in the area.

 

On the Russian/Ukrainian front, it is reported that Russia launched a large-scale offensive in the Kursk region on Thursday, breaking through Ukrainian defenses, according to both Ukrainian and Russian sources. The Ukrainian application, Deep State Map, reports that Ukrainian forces may have lost up to 14.7 square miles of territory in just one day and warns of a possible encirclement of Ukrainian troops in certain areas. If this Russian attack continues, it could change the relatively stagnant balance until now.

 

Fundamentals

Defense preparation for Israeli attacks has altered the functioning of the Kharg Island terminal. Iranian exports recently have fallen by about seven hundred thousand barrels per day (700 MBPD) compared to the previous month. A volume that practically compensated, barrel for barrel, for the return of Libyan crude to the market.

 

Russia's invasion of Ukraine has provoked successive waves of Western economic sanctions; however, this has not significantly affected the export of Russian crude and products. Russia has assembled a “ghost” fleet to transport Russian crude to its main customers, India and China. Less known is that Eastern European countries continue to receive and process Russian crude, as does Spain, albeit very discreetly. In these pre-election moments, the US seems to allow this ineffectiveness of its sanctions, as they help maintain the world supply without major upsets.

 

However, Russian production has fallen by 13% since before the invasion (January 2022), to about nine million one hundred thousand barrels per day (9.1 MMbpd). Offsetting the decline of its fields has been uphill due to difficulties in substituting sanctioned imports of oil equipment and services with national products. To disguise this effect, they justify the fall with compliance with OPEC+ quotas.

 

In Libya, the factions disputing control of the country reached an agreement and crude began to flow to markets, at a stable flow of one million two hundred thousand barrels per day (1.2 MMbpd).

 

According to the Energy Information Agency (EIA), commercial crude inventories in the US increased by five million and eight hundred thousand barrels (5.8 MMbbls), partly due to lower refining levels. The agency also reported an increase of one hundred thousand barrels per day (100 Mbpd) in crude production, although this may be just the result of the periodic adjustment and inventory calculation. The little effect this information had on the markets was probably because it was accompanied by a large reduction in gasoline inventories of six million barrels (6.3 MMbbls). Baker Hughes reports an increase of one unit in active rigs in the US, but no change in activity in the Permian Basin, the most important of all; it also reports an increase of 16 units in the rest of the world.

 

Almost a month has passed since the People's Bank of China announced monetary stimulus measures. Chinese and Asian financial markets reacted favorably; however, the initial enthusiasm gave way to concerns about whether the announced stimulus would be executed and whether it would be large enough to reactivate growth.

On Saturday, October 12, Chinese Finance Minister Lan Foan presented China's long-awaited announcement on its financial stimulus plans. The announcement was limited to reaffirming the central government's intentions, but few measurable details that investors need to justify their continued presence in the world's second-largest stock market. This uncertainty does not bode well for future Chinese oil demand. In fact, according to the latest figures published by Reuters, China's oil imports fell in September for the fifth consecutive month compared to the previous year due to low refining margins and refinery maintenance.

 

The World Bank warned, “For three decades, China's growth has beneficially spread to its neighbors, but the size of that impetus is now diminishing.” Recent fiscal support may boost growth in the short term, but long-term growth will depend on deeper structural reforms.

 

Price Behavior

The possible retaliation of Israel against Iran and the potential collateral effect has caused crude prices to return to levels close to $80/BBL; this despite several downward pushes in prices due to events that threaten the integrity of demand and others that signal an increase in supply. The impact of geopolitical risks is for now controlling market perception.

 

Although prices eroded slightly on Friday, they closed the week with gains, as did the previous week, all based on geopolitical tensions. Thus, the Brent and WTI benchmark crudes, at the close of markets on Friday, October 11, were quoted at $79.04 and $75.56/BBL respectively, showing an increase of just over 1% compared to the previous week; a modest increase given the potential impact of tension in the Middle East.

 

VENEZUELA

 

No Visible Progress

The week was characterized by relatively few events related to the resolution of the political crisis,  and much use of the regime-controlled media to distract the country based on scandalous news and the longest Christmas in the Christian world. The passage of time shortens the narrow window for negotiation for the transition. Both, Nicolás Maduro and Edmundo González, have indicated that they will be sworn in as presidents on January 10, 2025.

 

Some observers believe that Edmundo González, in terms of political effectiveness, is following the letter of the infamous document signed at the Spanish embassy in Caracas, which indicated that he would have limited public activity. Supporting this observation, it is mentioned that the president-elect did not address attendees at a recent mass event in the Spanish capital, nor has he traveled or given press conferences in person. Meanwhile, in Venezuela, María Corina Machado continues her vigorous campaign through social media, keeping lit the fire of what for her is the inevitable political change. For their part, the Chancellor of the European Union, Josep Borrell, and the head of the US mission to Venezuela, Francisco Palmieri, seem to agree that international pressure is fundamental in resolving the conflict.

 

In Spain, the scandal of Mrs. Delcy Rodríguez's visit to Barajas airport in 2020, known as “Delcygate”, was revived; more to do with the internal diatribe in the Iberian country than Venezuelan politics. The president of the National Assembly, Jorge Rodríguez, in an obvious distraction strategy, demanded, again, the rupture of all kinds of relations with Spain, a reiteration of a previous resolution of the National Assembly. On that particular occasion, Rodríguez, Jorge, had forgotten that Venezuela heavily relies on the gasoline supplied by Repsol and on the foreign currency generated by Repsol. The cancellation of the numerous flights between the two countries would result in a complete isolation of the country. Luckily for the regime, Rodríguez, Delcy, in her capacity as newly appointed oil minister, quickly defused the bomb planted by her brother and met with Repsol. She reminded the Spanish company that her government had just extended the limits of the block that Repsol operates in the west of the country, and that said extension included access to the best deposits in the Maracaibo Lake basin.

 

In the economic aspect, politics has indeed had changes. As we mentioned last week, the combination of exchange rate anchoring and high levels of public spending, without an increase in the availability of foreign currency, was an unsustainable proposition. Therefore, as a first step, public spending was reduced as far as the cash flow would allow, by almost 30%. Last Friday, the Bolivar was devalued against the official dollar by 3.4%. The subterfuge used by the Central Bank (BCV) was the “auction” to the banking sector of $30 million at a rate close to 40 Bs/$, in a process with a floor of 39 $/Bs. The process, as expected, closed the gap between the official and parallel rates to 22%, 4% less than the day before. Liquidity was also restricted by eliminating the reductions applied to bank reserves, reversing the trend from July 2024 that had allowed banks to give more credits. In any case, these are only palliative measures for a seriously ill economy.

 

Oil Operations

 

The only joint ventures that have been increasing their production are those operated by Chevron and Repsol. Not even Maurel & Prom, generally mentioned in the same group, had a marked effect on production.

 

Production in the first days of October averaged eight hundred and forty-six thousand barrels per day (846 Mbpd), slightly higher than the close of last week. The geographical distribution of average production is broken down as follows: 

 

West:                                       193 (Chevron 89) 

East:                                         139

Orinoco Belt:                    514 (Chevron 110) 

TOTAL:                                    846 (Chevron 199)

 

The processing level in national refineries stood at 187 MBPD of crude and intermediate products, with a yield in terms of gasoline and diesel of 58 Mbpd and 71 Mbpd respectively. The domestic demand for gasoline is estimated to be between 120 and 140 Mbpd, therefore, to satisfy it, the country depends on the oil-for-gasoline swaps executed by Repsol.

 

October exports remain in line with the month's export plans of 660 Mbpd, partly to alleviate the bulky inventories at the Jose terminal.

 

Last week, we reported that Repsol had loaded 100 Mbpd of crude bound for Spain. In reality, part of the volume lifted, about 45 Mbpd, was taken to the US, specifically the part used for the gasoline swap, the rest of the volume was sent to Spain.

 

In September, PDVSA's debts with Chevron and Repsol were reduced by about ninety million US dollars ($90 MM), from an initial total of around three billion dollars ($3 BN), between the two companies.

 

The Indian company Jindal, recently chosen as Partner B in the Joint Venture (JV) PetroCedeño, has announced its withdrawal from the project. Although no reasons were publicly given for such a decision, it is presumed that they did not reach agreements in the negotiations of the contracts applicable to the management of operations. The withdrawal of TotalEnergies and Equinor from that same JV was associated with differences with PDVSA regarding the safe operation of the “upgrader”, which must have appeared in the Indian company's due diligence process. Moreover, It is understandable that with the higher country risk, a product of the political and legal uncertainty, investors seek much higher returns to compensate for the inherent risks of investing in Venezuela.

ISRAEL- IRAN CONFLICT THREATENS TO DISRUPT THE MARKET

El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

The possibility that the armed conflict between Israel and Iran and its allied terrorist groups could affect the oil market was likely, but until this week's events, it seemed like a distant cloud. The Iranian attack on Israel this week is, in principle, a retaliation for Israeli attacks on Iranian proxies. It will likely provoke a counterattack from Netanyahu's government, with oil targets as a priority. This chain of events has raised the political risk premium, driving oil prices up by almost 10% during the week. The market focused so much on geopolitics that the potential bearish effect of increased crude inventories in the U.S. and the return of Libyan production to the market went under the radar.

 

Geopolitics

This conflict, the most recent chapter in the Arab-Israeli territorial struggle, was initiated 12 months ago by the Palestinian group Hamas's attack on Israeli territory, leaving hundreds of civilian casualties and dozens of hostages. The Israeli state's military response has been forceful but also widely criticized. Israel's recent relative success, simultaneously attacking Iranian proxy enclaves on several fronts and even an attack on Iranian territory, pushed Iran to launch a direct attack on Israel. About 200 missiles were launched, including some of the most sophisticated in the Iranian arsenal, with relatively minimal damage due to the effectiveness of the “Iron Dome,” according to reports from international observers.

It's important to note that the Iranian government informed the authorities of Saudi Arabia and Jordan that the attack was going to take place. These, in turn, warned Israel and the U.S., so there was no surprise effect. Perhaps this warning was made intending to avoid an immediate escalation of the conflict; Iran later reported that it considered its response to the Israeli attack finished. It's also significant to note that both Saudi Arabia and Jordan are allowing Israeli aviation to fly over their territories.

Another active front is the sea around Yemen, where the Houthi militia, also supported by Iran, hit a British oil tanker with a missile. Earlier in the week, two other British Navy ships were attacked by drones. In all cases, the crews were unharmed. British and U.S. forces bombed the areas where the attacks originated.

From the information issued by the U.S. and Israel, it can be inferred that the most likely Israeli retaliation would be against Iranian oil facilities, possibly on the Kharg Island oil terminal. Located 24 kilometers off the northwest coast of Iran, the Kharg terminal is vital to the Iranian economy, as it handles 90% of its oil exports. Anticipating an attack on these facilities, tankers docked or anchored at the terminal have evacuated the area to take shelter in the Persian Gulf. In a strange twist of history, we can note that this terminal was destroyed during the Iran-Iraq war in the 1980s.

The coming months will determine whether Israel's impressive offensive against Hezbollah over the past month, which has now triggered an Iranian ballistic missile attack against Israel, perpetuates and escalates the relentless cycle of violence in the Middle East or stands as a positive turning point against Iranian-backed aggression.

The “Abraham Accords” (2020), which seek to establish relations between Arab countries and Israel to ensure peace and whose progress was the main victim of Hamas's invasion of Israel on October 7, 2023, are still standing. Significantly, the countries that signed the Abraham Accords with Israel have not abandoned hope of returning to the course of normalization. This will be crucial if Israel wants to change the course of what has become the most existential threat to the Jewish state since the 1973 Yom Kippur War. None of these countries has cut ties with Israel or disassociated itself from the agreements. And although many, including the United Arab Emirates, have tried to calm tensions with Iran, they do so with their eyes wide open to the ongoing threat that Iran represents.

Meanwhile, on the Russian/Ukrainian front, each army concentrated on attacking the other's territories. Russian troops have taken complete control of the eastern city of Vuhledar, but at a very high price in terms of casualties and equipment loss. The Ukrainian strategy in the Donbas is to withdraw slowly, causing maximum Russian losses and exhaustion.

As the Ukraine/Russia war approaches 1000 days, with its terrible consequences in terms of human lives and infrastructure destruction, its effects on the global hydrocarbon industry have not materialized.

In any case, all the great powers are, in one way or another, associated with or interested in these two conflicts. The possibility that the conflicts will escalate and eventually intermingle with the disputes between China and Taiwan and China's objective of controlling the South China Sea is not ruled out. In that sea, a good part of world trade transits, and there are disputes between several countries over the delimitation of territorial waters. The Philippines, Malaysia, Taiwan, Vietnam, and China have disagreed about the area's limits and mineral rights. For example, Malaysia is expanding oil and gas exploration in the disputed South China Sea despite pressure exerted by the constant presence of Chinese navy ships.

So we find ourselves in a complex geopolitical situation, with multiple foci of potential problems that are to some extent interdependent, so events in one of these conflicts could trigger a domino effect of alarming proportions. The fact that oil is the fuel that moves the world, especially in times of war, makes it appear as a potential trigger or mitigator.

 

Fundamentals

The preventive closures of production facilities in the Gulf of Mexico due to the presence of Hurricane Helene have been fully recovered, so crude production increased by one hundred thousand barrels per day (100 Mbpd). However, Tropical Storm Milton is already beginning to be a cause for concern. The other major supply disruption, the closure of production in Libya, is also coming to an end. The opening of about 600 MBPD has already begun.

The greatest efforts to generate production in the U.S. have been oriented to the natural gas sector in preparation for the winter in the Northern Hemisphere and the increase in demand for liquefied natural gas (LNG) exports. The International Energy Agency (IEA) predicts that gas demand is rebounding globally, 2.5% in 2024, and is heading towards consumption records in 2025, increasing another 2.5%. Natural gas prices in the U.S. indicate this, as well as drilling activity. According to the report, gas-dedicated rigs have increased by five units while reporting a drop of three units in the shale oil basins (-2 in the Permian).

On the other hand, commercial crude inventories showed an increase of 3.9 million barrels (MMbbls), a product of higher imports, lower refining levels, and lower exports related to Hurricane Helene and the adjustments that the EIA applies weekly in its Wednesday reports.

Additionally, the U.S. Bureau of Labor Statistics reports an increase of 254,000 jobs in September, above the consensus of 165,000. The unemployment rate remained practically unchanged at 4.1%.

OPEC and OPEC+ are trying to counteract the adverse effects caused by the news of the supposed change in OPEC+'s commercial strategy. OPEC refuted a Wall Street Journal article, which reported that the Saudi Oil Minister had said that oil prices could fall to $50/BBL if group members do not respect production cuts, to clarify that it was “totally inaccurate and misleading” information. Thus, OPEC stated that what was planned, as announced, was the progressive and gradual dismantling of production closures by the organization's members.

In China, the financial stimulus measures applied by the central government seem to have had an initial positive effect. For example, the Shanghai Composite Index rose more than 7% during the week. We'll have to see if the measures will have the same effect on oil demand.

So, as far as fundamentals are concerned, the balance we can make is a net increase in supply for the last quarter of the year of about eight hundred thousand barrels per day: 650 MBPD from the return of Libya, 100 MBPD for the increase in U.S. production and 50 MBPD for the opening announced for December by OPEC+, against a demand (around one hundred and three million barrels per day) that for now has not given indications of yielding.

 

Price Dynamics

Prices rose to new six-week highs due to growing speculation that Israel would attack Iran's oil infrastructure in retaliation for Tuesday's missile attack. When asked about the news, President Biden said in an impromptu comment: “We are discussing that.” So, as long as the expectation of a strong retaliation on oil facilities is maintained, the geopolitical risk premium will have significant effects on the oil market. Consequently, we estimate that prices will remain close to $80/BBL, in terms of Brent Crude, and then after the attack (if it occurs), reflect the magnitude of the supply disruption and the resulting probability of conflict escalation.

That post-retaliation price largely depends on the idle production capacity that OPEC+ can open and bring to market to replace the affected volume. The IEA and EIA (U.S. Energy Information Administration) maintain that idle capacity is around 5.5 million barrels per day (5.5 MMbpd), far superior to the loading capacity of the Kharg terminal, which is about 2.0 MMbpd. Our analysis estimates that the real idle production capacity is much lower than that mentioned by these international organizations. Of a total of 2.4 MMBPD remaining in this category after uncompensated declines, only 500 Mbpd are immediately available, and the other 1.9 MMbpd require months to be available. So, under our scenario, the disabling of Kharg can hardly be compensated by idle production capacity in OPEC+.

As things stand, the benchmark crudes, Brent and WTI, closed on Friday, October 4, at $78.08/bbl and $74.38/bbl, respectively, an average increase of 9% compared to the previous week's closings.

 

Other Oil News

• Ecopetrol and its partner Petrobras announced that the Uchuva-2 delimiting well confirms the extension of the natural gas discovery made in 2022 with the drilling of the Uchuva-1 well. This well provides significant information for developing this new production frontier in the Colombian Caribbean and reinforces the gas potential that has been foreseen in the region. The Uchuva-2 well is located in the Tairona Block, approximately 31 kilometers from the coast, and its drilling, at 804 meters of water depth, began on June 19. Meanwhile, the drilling platform contracted for drilling the Komodo-1 exploratory well is withdrawing from Colombia due to the high costs incurred in mobilization and waiting, as it still needs to receive the Environmental license. The block operator is Ecopetrol, and its partner is a subsidiary of Oxy. As a curious note, the Uchuva wells will now be called Sirius, and the Tairona block will be known as Gua-Off as a result of a legal action filed by the indigenous community of Taganga. Further evidence of the complex relationship with communities.
• Petrobras announced that its board of directors gave the green light to acquire a 10% stake in the offshore block in the “Deep Western Orange” basin in South Africa. The purchase in the deepwater field came after a competitive process organized by the French oil company TotalEnergy, which operates the project and will maintain a 40% stake in the block. This consortium includes TotalEnergy (40%), QatarEnergy (30%) and Sezigyn Pty (10%). This approach seems aimed at diversifying exploratory risk and responding to the fact that pre-salt basin discoveries have been decreasing, and exploratory “plays” at the mouth of the Amazon have not received due environmental permits.
• U.S. dockworkers and port operators reached a tentative agreement that will immediately end a crippling three-day strike that has paralyzed maritime transport on the East Coast and Gulf Coast, both parties said on Thursday.
•  

VENEZUELA

The Ubiquitous Electoral Acts

While the regime acts pretending that July 28 never existed, formal evidence increasingly supports Edmundo González's electoral victory. On this occasion, the Carter Center, which was an electoral observer in the Venezuelan presidential elections on July 28, with extensive experience in these matters and which in the past was perceived by the regime as a friendly actor, joined those who question Maduro's position and his National Electoral Council (CNE). Its principal advisor for Latin America, Jennie Lincoln, showed before the Organization of American States (OAS) the “original” voting records that point to the triumph of the opposition candidate Edmundo González Urrutia. The records would confirm that the standard-bearer of the main Venezuelan opposition platform, Edmundo González Urrutia, won the elections with 67% of the votes, while the current president, Nicolás Maduro, would have obtained 31%.

However, the regime is refusing to initiate negotiations aimed at starting the peaceful political transition that derives from its electoral defeat. Furthermore, it is inviting political parties to begin conversations about the future of parties and future electoral processes under the premise that all attendees commit to accepting the rulings and decisions of the Supreme Court of Justice and the CNE; that is, to start a new game and annul recent history. The democratic opposition, invited to the meetings, indicated its disagreement with the procedure.

The persecution of the democratic opposition continues. This time, it was the turn of several members of María Corina Machado's (MCM) security ring, detained by the political police, SEBIN, without a court order. On the other hand, the regime is repeatedly announcing that MCM is about to leave the country as a divisive strategy of the opposition.

The projection of the economy does not promise dividends for the regime either. Even SENIAT's collection has been markedly reduced, which has forced public spending to be restricted below planned values. The shortage of foreign currency fails to maintain the exchange anchoring policy, which will have to be adjusted to avoid the growth of the gap between official and parallel exchanges, which is already over 21%. Imports cannot be financed by the system, the foreign currency available for this purpose has suffered a continuous deterioration in the past six months.

The economy is deteriorating, and the parallel exchange rate, currently at 43.9 Bs/$, is estimated to approach 60 Bs/$ by the end of the year. The reduction in consumption and rebound in inflation will be difficult bones to chew under inflexible economic policies.

Oil revenues, led by Chevron, have not increased despite the increase in volume taken by Chevron to the U.S. due to the deterioration of oil prices lately. The current price situation, increased by the Middle East situation, could give some breath to the regime's accounts while it lasts. However, it is important to note that oil prices have a double edge, as the country also needs to buy gasoline and diluent to keep the country running. This pernicious effect means that a 10% increase in the price of crude represents only a 4% increase in net income.

Oil Operations

At the end of September, crude exports were lower than projected due to delays in loading crude destined for India and greater competition in the Chinese/Malaysian market, which allowed replenishing inventory that had been drained to achieve exports in previous months. Electrical blackouts, a problem with no solution in sight, have affected the operation of export terminals and refining, upgrading, and petrochemical plants.

Crude production activities remain stable. Crude production averaged eight hundred and forty-four thousand barrels per day (Mbpd), practically unchanged from the previous week. The geographical distribution of production is as follows:

 

Mbpd

• West:                           191 (Chevron 89)
• East:                            140
• Orinoco Belt:              513 (Chevron 109)
• TOTAL:                      844 (Chevron 198)

Chevron almost reached, in the joint ventures it operates, the maximum planned production level for the year: 198 MBPD.

The processing level of national refineries stood at 183 Mbpd of crude and intermediate products, with a yield in terms of gasoline and diesel of 50 Mbpd and 70 Mbpd, respectively.

September exports fell compared to August. The average for the month was 564 Mbpd of crude. Exports by destination were distributed as follows:

USA: 245 Mbpd, 85 Mbpd of Boscán, 90 Mbpd of Hamaca, and 70 Mbpd of Merey. China and Malaysia: 184 Mbpd. Spain: 100 Mbpd, and India: 35 Mbpd There were no deliveries to Cuba, and 54 Mbpd of residual fuel were exported to the Far East.

 

CITGO: Too many lawyers spoil the case

This week, in the Delaware court, where the forced sale of CITGO's parent company is being heard, presided over by Judge Leonard Stark, a new chapter unfolded in this complex story. The hearing was supposed to set a final date (November 19) for the auction award, given the result announced last week, declaring Amber Energy, a subsidiary of investment firm Elliot Investment Management, as the auction winner.

The number of objections presented by the lawyers of the numerous creditors to the offer presented by Elliot was such that Judge Stark had no choice but to declare: “I cannot have a final sales hearing on November 19.” This new turn in this long story postpones what until this week was taken as a fact, and it is not clear what options the judge has to get out of this complicated judicial labyrinth.