The doubts about the robustness of oil demand seem to be wandering the halls of OPEC+. The rumor that this group of producing countries would be considering postponing the dismantling of their production cuts until 2025 became a reality this Sunday, November 3, an implicit recognition of the weakness of global demand. On the other hand, as details of last week’s Israeli attack on Iranian facilities began to emerge, it became clear that, rather than the physical damage caused, the Israeli operation exposed the vulnerability of Iran's defenses to such attacks. The Iranian leadership realized once they understood the form and the damage inflicted on their facilities and the progressive weakening of their allies in the conflict, Hezbollah and Hamas, that they had to take a tougher stance.
Ayatollah Ali Khamenei, the supreme leader of Iran, changed his initial, relatively conciliatory tone to a threatening one and announced that “the enemy, both the Zionist regime and the United States, will definitely receive a crushing response for what they are doing to Iran and the resistance front.” The Iranian message strained an already nervous market. However, the week closed with another decline in oil prices as news emerged of a possible ceasefire in Gaza and somewhat ambiguous U.S. labor market statistics were revealed. In all, it is a volatile market in the face of expectations of the U.S. elections.
Geopolitics
The week began with a steep decline in prices (-5%) upon learning that the oil facilities had not been targets of the Israeli retaliation of October 26th. The first wave of the Israeli attack deactivated the air defenses located in Syria and Iran, including sophisticated Russian equipment, allowing a fleet of over 100 fighter jets to penetrate Iranian airspace without any reported losses. The ayatollah's threats are also directed at his citizens, seeking to unify the population against a common enemy and probably as a distraction from the military weaknesses that the attack revealed. In any case, the messages pushed up the price of the barrel.
Ceasefire negotiation efforts were revived by U.S. pressure ahead of the elections. It is a package of hostage exchange for prisoners and a window of time for the safe entry of humanitarian aid into the Gaza Strip; according to U.S. sources, Israeli Prime Minister Netanyahu is seriously considering it. This new hope, combined with the unlikelihood of Iranian threats in the short term, appeased market concerns for now.
On the Russian/Ukrainian front, little change was seen in the relative positions of the two parties, although the news focused on a topic that may have a major long-term impact. This is the presence of North Korean troops, apparently already on the battlefield, in the Kursk area. NATO considers this unexpected fact as an expansion of the conflict. Putin, on the other hand, maintains that the expansion was provoked by NATO's intervention in the confrontation.
Meanwhile, although the North Korean regime has not confirmed the presence of its troops, the Minister of Foreign Affairs of Pyongyang, Choe Son-hui, stated in Moscow that her country intends to support Russia “until the final victory.”
The visit of Antonio Guterres, Secretary General of the United Nations, to Kazan, Russia, to be present at the BRICS meeting caused a diplomatic stir. In a statement before Guterres' visit, the Ukrainian Ministry of Foreign Affairs said: “This is a wrong decision that does not promote the cause of peace. It only damages the UN's reputation. The UN Secretary-General rejected Ukraine's invitation to the First World Summit for Peace in Switzerland but accepted the invitation to Kazan made by the war criminal Putin,” the statement added.
On the eve of the U.S. presidential elections, it is reasonable to assume that decisions in the geopolitical field are suspended. The two candidates have divergent positions on almost all international issues, including issues of the Middle East conflict, Russia and Ukraine, Venezuela, illegal immigration, and the green agenda.
Fundamentals
The Energy Information Administration (EIA), in its weekly report, indicates a production of thirteen million five hundred thousand barrels per day (13.5 MMbpd) and has reported this for several weeks. However, its monthly report indicates values between one hundred to two hundred thousand barrels per day less than in the corresponding weekly reports. It is also relevant to observe that, according to this same monthly report, 2023 closed with 13.3 MMbpd and that the latest available figure (August 2024) shows the production of 13.4 MMbpd, that is, an increase of only 100 MBPD; the only basin showing an increase in production is the Permian. However, we estimate that even this annual growth could be nullified, at least in the state of New Mexico, due to the restrictive measures dictated by the government that limit the use of federal land for oil expansion. According to the Baker Hughes report, U.S. oil and natural gas companies held the number of drilling rigs unchanged this week. So, it is valid to assume that production in the U.S. will remain relatively constant: around 13 MMbpd.
Commercial crude oil inventories showed a marginal reduction of around five hundred thousand barrels (500 Mbbls), while those of gasoline and distillates showed a drop of around three million and seven hundred thousand barrels (3.7 MMbbls). The Biden administration reported that it was acquiring three million barrels of crude oil to be added to the strategic reserves (SPR) between April and May 2025.
Doubts about the Chinese economy have clouded the oil outlook throughout this year. The economic measures taken by the central government to boost the economic recovery have focused on promoting industrial production, especially in the high-tech and innovation sectors, and injecting large sums of money into state-owned banks. However, they have not been able to maintain sufficient dynamism to achieve economic recovery and modernization. Perhaps the explanation is more political than economic. In a recent meeting of the Central Committee of the Chinese Communist Party and the State Council, a new directive was issued: “to develop an advanced industrial workforce to drive modernization in the Chinese style.” The plan requires organizing workers into groups and strengthening ideological and political orientation.
This announcement reinforces President Xi Jinping's way of thinking and governing, and according to some, has some traces of what in the 1950s Mao Zedong called the “Great Leap Forward”: an extreme control from the communist party, following the leader's vision, although on this occasion within the framework of the digital age, the energy transition and private capital. Despite the historical legacy of Maoism, the leadership is adopting similar measures and even using similar language, “great leap” and “leap forward,” to describe their plans. Faced with Western export controls and the decline of foreign investment, Xi Jinping seems determined to put all his eggs in one basket, self-sufficiency, especially technology, without a clear path to achieving it. The big question is whether India will be able to replace the oil demand that China is likely to lose on its way to iron-fisted central control.
OPEC+ was also causing some confusion in the oil market in terms of its cut strategy. OPEC+ representatives had indicated that the group was considering delaying the scheduled production increases for December. On November 3, in a press release issued from Vienna, the group confirmed the rumors, stating that they have agreed to extend the voluntary production adjustments of November 2023 of 2.2 million barrels per day for one month until the end of December 2024. This will surely be interpreted as an acknowledgment by OPEC+ that demand growth is compromised. In any case, the market may also interpret it as the group's willingness to defend prices.
Most forecasters include Chinese economic uncertainty in their demand estimates. When they turn to the supply side, they predict a tsunami of new production based on the somewhat unsound premise of OPEC+’s spare capacity and the incremental production announced by Brazil, Canada, Guyana, and Argentina. Moreover, they factor in new production in the U.S.
However, these projections do not consider that OPEC+ has been aware of avoiding abrupt changes in the oil market that end up harming its objectives. Nor do these analysts seem to be considering the decline in production in the North Sea, Russia, Mexico, and Colombia, among other countries. By incorporating these elements and an unexpected supply disruption in the Middle East, the forecasts could be reversed, which is why the market remains volatile and sensitive to changes that potentially affect the demand/supply balance.
In Mexico, in what appears to be a shift in hydrocarbon policy, Victor Rodriguez, the new CEO of Pemex, said: “The reclassification of Pemex as a public company will not limit partnerships with the private sector. Private investment will be particularly welcome, especially in co-generation and clean energy projects.” The change is likely motivated by the reductions that the government has had to make in Pemex’s investments in its upstream component and the continued production declines that have already reduced output to 1.45 MMbpd. It is also no small matter that PEMEX continues to post losses that the Mexican treasury absorbs.
Price Behavior
The geopolitical risk premium that has caused the market to fluctuate recently seems to have evaporated, largely because the Israeli attacks on Iran avoided critical energy infrastructure. However, the risk of escalation remains, especially after Iran said it would respond to Israel's attack appropriately. Furthermore, some observers think Israel could opt for a deeper incursion into the Iranian economy, probably after the uncertainty of the U.S. elections is cleared.
Oil prices were boosted mid-week by optimism around U.S. fuel demand following an unexpected drop in inventories of crude, gasoline, and distillate. If we add to this the hopes of an increase in stimulus-driven by China and rumors that OPEC could delay its production increases, we have a recipe for modest short-term dynamism in oil.
So, Brent and WTI crudes, at the close of trading on Friday, November 1, were trading at $73.1/BBL and $69.2/BBL, respectively, closing the week with a 4% loss compared to the previous week.
VENEZUELA
Brazil, the uncomfortable ally
Although the regime has directed its guns towards Brazil to explain its non-admission to the BRICS group, it is also true that none of the other member countries showed robust support for Caracas. They opted not to express an opinion since Brazil's veto was enough to prevent the inclusion.
This dismal episode needed a scapegoat, and the regime chose Celso Amorín, the experienced Brazilian diplomat close to President Lula, formerly a reliable supporter of the Chávez and Maduro regimes. The President of the 2020 National Assembly (AN), Jorge Rodríguez, announced that he would request that the former Brazilian Foreign be declared “persona non grata” for ignoring the re-election of President Nicolás Maduro and influencing President Lula to veto Venezuela's incorporation.
Brazilian diplomacy usually does not respond to this type of temperamental maneuver, but this time, it considered it deserved a response. The government of President Lula da Silva denounced this Friday the “offensive tone” adopted by Venezuela towards Brazil amid a crisis over the Brazilian veto on Caracas' entry into BRICS and questions about the re-election of Nicolás Maduro.
On the other hand, in its strategy of showing institutional normalcy, the National Assembly ratified in their positions, for a second term of 7 years, the Attorney General, Tarek William Saab, and the Ombudsman, Alfredo Ruiz. The ratification of Saab is considered a victory for Maduro over Diosdado Cabello, the number two of Chavismo, whose candidate for attorney general did not achieve the designation.
Continuing with its campaign to seek support to achieve political change in Venezuela, Edmundo González Urrutia was received by the Prime Minister of Italy, Giorgia Meloni, in Rome. Meloni reiterated “Italy's support for efforts to facilitate the democratic transition” in Venezuela. González Urrutia also visited the Italian Parliament, where a group of lawmakers offered their recognition as the elected President of Venezuela.
On the economic front, things continue to deteriorate. The regime is allowing the official exchange rate to slide to close the gap with the parallel dollar, which is not happening due to the lack of sufficient foreign exchange available. Tax collection, which was at record levels two months ago, has also fallen and is in a vicious circle as the economy and consumption continue to shrink, a product of lower public spending. The restriction of monetary liquidity, which places banks with unsustainable reserves, results in a tightening of bank credit. Inflation will appear again.
Oil Operations
Crude oil exports for October reached the expected levels, with two shipments dispatched on the last day of the month.
The average crude oil production for October reached eight hundred and forty-six thousand barrels per day, while during this last week, it was eight hundred and fifty thousand barrels per day (850 Mbpd), geographically distributed as detailed below:
• West 196 (Chevron 90)
• East 138
• Orinoco Belt 516 (Chevron 112)
• TOTAL 850 (Chevron 202)
The crude upgrader of the joint venture company, PetroPiar, the only one in operation in Jose, produced 95 Mbpd of upgraded Hamaca crude, the highest level since Chevron has been responsible for the operation.
The level of processing at the national refineries stood at 180 Mbpd of crude and intermediate products, with a yield in terms of gasoline and diesel of 48 Mbpd and 73 Mbpd, respectively. The Cardón refinery naphtha reformer remains idle and, therefore, the manufacture of gasoline is severely affected. Long queues for gasoline supply are observed throughout most of the national territory, and many service stations are without products.
Crude oil exports in October reached 637 Mbpd, and product exports 93 Mbpd. 443.5 Mbpd of Merey 16, 98 Mbpd of Boscán crude, and 95.5 Mbpd of Hamaca crude were exported. All the Boscán and Hamaca crudes were sent by Chevron to the USA, as well as 84.5 Mbpd of Merey 16, a total of 278 MBPD.
187 Mbpd were exported directly and via Malaysia to China; exports to India rebounded to 123 Mbpd; to Spain, through Repsol, 32 MBPD, and finally, to Cuba, 17 Mbpd.
