PUTIN AND BIDEN, "THE CHICKEN GAME"

   El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

The "chicken game" is a two-participant game in which each player has two alternatives: "continue playing" or "move away." If both players persist, they both lose. If one opts to withdraw and the other persists, the one who withdraws gains benefits, and the other suffers losses. If both choose to withdraw, there is no winner. The English philosopher Lord Bertrand Russell equated the arms race and nuclear escalation of the 20th century with the chicken game.

 

Putin's exaggerated reaction to the Biden Administration's decision to authorize supersonic missiles against military targets in Russian territory, warning of his willingness to use nuclear weapons if necessary, certainly qualifies as a "chicken game." This rhetorical and material escalation brought geopolitical risk back to markets and has raised oil prices, recovering November's accumulated losses. This escalation in confrontation has been front-page news, but there are other elements the market will consider, such as inventories and other fundamental factors. The impact of the upcoming OPEP+ deliberations should be remembered. Speculations about the "Trump effect" will continue until January 2025, when he becomes the 47th US President.

 

In Venezuela, the serious petroleum and economic consequences of the catastrophic accident at Muscar facilities, PDVSA's operational center in the eastern part of the country, are beginning to be experienced.

 

Geopolitics

Geopolitical tensions in the Russia-Ukraine war returned to the center of attention, overshadowing the also delicate situation in the Middle East.

 

It is difficult to determine whether the Biden administration's decision was last-minute or contemplated. However, it was made to show that it was still in control of foreign policy and to demonstrate strength that had been absent during most of its four years. On November 17, the US gave the Ukrainian government the green light to attack targets in Russian territory using US-origin tactical missile systems (ATACMS).

 

In simple terms, this means Ukraine now can reach targets in Russian territory at a greater distance than before. These missiles are difficult to intercept and extremely precise. It is still being determined if this decision was consulted with the incoming administration. Still, in any case, it is unlikely that the decision will affect any peace plan proposed by President-elect Donald Trump, who has not officially spoken about the conflict, which has already lasted a thousand days.

 

In any case, the decision has served for Russia to make a lot of noise and even brandish a new doctrine for the use of its nuclear arsenal. A spokesperson for the Russian Foreign Ministry indicated that Moscow would consider an ATACMS missile attack on its territory as an aggression from the US and not from Ukraine, accusing Biden of "adding fuel to the fire and continuing to stoke tension."

 

Additionally, the US imposed sanctions on dozens of Russian banks, securities registrars, and financial officials; OFAC issued an alert warning about the risks of joining Russia's Financial Transfer Messaging System, all following the agreements of the Group of Seven (G7). The measure, which uses the department's most potent sanctions tool, means that these banks, including Gazprombank, one of the most important on the sanctioned list, cannot handle any new energy-related transactions touching the US financial system, their trade with Americans is prohibited, and their assets are frozen in the US.

 

 

A surprise news story shocked the international community in the Middle East conflict. The International Criminal Court (ICC) issued arrest warrants on Thursday against Israeli Prime Minister Benjamin Netanyahu, his former Defense Minister, Yoav Gallant, and a Hamas leader who has already been eliminated in the war. The court indicts them as being the main responsible parties for crimes against humanity and war crimes committed at least since October 8, 2023.

 

The Israeli Prime Minister branded the decision as "antisemitic" and considered himself a victim of a new "Dreyfus trial," drawing a parallel with the treason conviction of the French captain of Jewish origin, Alfred Dreyfus. The case became a celebrated cause thanks to an open letter by Émile Zola ("I Accuse"), which mobilized a reopening of the case and revealed, among other things, the antisemitism surrounding the case.

 

As expected, the US distanced itself from the tribunal's decision, considering that the ICC is not legally competent in this matter. It criticized the "prosecutor's eagerness to request arrest warrants and the worrying errors in the process that led to this decision." Meanwhile, Israel's campaign to weaken Hamas and Hezbollah continued with bombings in northern Gaza and southern Lebanon. Late Sunday, November 24, an imminent ceasefire agreement between Israel and Hezbollah was reported, while military actions intensified.

 

In the Middle East, the International Atomic Energy Agency (IAEA) is attempting to revive conversations with Iran. To that end, it approved a resolution urging Iran to improve cooperation with the atomic world community and requesting access to assess its arsenal comprehensively. Tehran refused but proposed limiting its uranium reserves. The timing of these actions seems out of sync with the international environment, given the imminent change in the US administration, which will likely be more demanding of Iran.

 

In Baku, more than a day after the scheduled end of the Climate Change Conference (COP29), negotiators from nearly 200 nations finally agreed on the enormous sums of money the poorest nations need to face the worst effects of global warming.

 

The final agreement voted in the early hours of Sunday in Azerbaijan, stipulates that developed countries mobilize at least three hundred billion dollars annually until 2035 to help the poorest nations most vulnerable to climate disasters. This last-minute agreement prevented the conference from ending in chaos and repeating the fiasco of COP16 that recently ended in Cali, Colombia, without any agreement. The likelihood of the agreement holding is up in the air, given that Donald Trump has said he will withdraw from climate agreements.

 

In Mexico, the ruling Morena party's coalition and its allies in Congress voted in favor of a bill proposed earlier this year by former President López Obrador that eliminates seven of Mexico's 11 independent regulatory bodies, including two in charge of the energy sector, the CRE and the CNH, which will be "absorbed" by the Ministry of Energy. The project will be sent to the Senate, with a Morena majority and its allies, for discussion and approval. It is expected to happen quickly and be sent to the executive power to be endorsed and published. Its supporters have defended the bill, arguing that it will generate savings for the State and simplify procedures. However, its critics warn that it could damage competition and reduce already limited transparency.

 

Fundamentals

Despite this week's fundamentals pointing to higher US crude inventories, the EIA reported an increase of only five hundred thousand barrels in commercial inventories. The reported increase is insignificant considering that refinery utilization remained constant during the week, while crude imports increased by one million one hundred thousand barrels daily (MMbpd). More relevant is the increase of over 2 MMBBLS in gasoline inventory, although, as we have maintained, the trend has more interpretative value than weekly values.

 

US production remains constant at around thirteen million barrels per day (MMBPD), with the EIA publishing a reduction to 13.2 MMBPD this week in reconciling adjustment factors to the figures it had been reporting. US drilling activity is reducing drop by drop. This week, Baker Hughes reports one less rig on the list of active units.

 

Close collaborators of President-elect Trump indicated that contrary to media reports, the coined phrase "drill baby drill" to describe Trump's domestic oil policy does not align with the domestic oil industry's reality, where financial discipline will continue to prevail as long as an environment of uncertainty persists, especially regarding global demand.

 

The relatively constant US crude production raises doubts about some agencies' perspectives of overproduction for 2025, mainly since those analyses include a 300 MBPD increase in the Permian Basin for non-OPEP+ growth. In any case, the North American hydrocarbon industry would be prepared to react when market conditions dictate.

 

Under the new administration, the US liquefied natural gas export business is expected to be boosted, which could affect oil production, especially in Texas.

 

Contradictory signals continue to emerge from China. The narrative around Chinese demand remains biased downward, with some analysts pointing to structural changes in the country's economy that likely mean a slowdown in oil demand growth despite stimulus measures. However, according to customs authority reports, crude purchases increased in the last two months; these could be opportunistic purchases of Russian and Venezuelan crude due to competitive advantages. However, reaching a definitive conclusion requires additional information and analysis.

 

Another factor to consider is OPEP+'s position regarding gradually opening its "closed" production capacity or postponing the decision. The recent price rebound due to geopolitical reasons might motivate some relaxation and elevate the group's production above the 40 MMbpd of recent past production. However, reaching a consensus will be challenging because the closed capacity isn't homogeneously distributed among members and associates.

 

Saudi Arabia, UAE, Iraq, and Kazakhstan may have the potential to increase production; other countries might not even maintain current production levels. Therefore, making a discretionary volume opening decision will be complex. Leaving everything unchanged would provoke protest, but managing unanimity with future increment promises might be achievable; this will be the decision at next weekend's meeting.

 

Finally, Iran is hurrying to deliver the most crude to China, primarily via Malaysia, which offers sufficient economic discounts to attract Chinese oil companies. Simultaneously, smuggling from Iraq appears to resolve the domestic gasoline deficit.

 

Other News

• ConocoPhillips (NYSE: COP) announced the completion of the Marathon Oil Corporation (NYSE: MRO) acquisition. Per the merger agreement, each Marathon Oil ordinary share converted to the right to receive 0.255 ConocoPhillips ordinary shares at the merger's effective moment, with cash in lieu of fractional shares.

 

• Shell (SHEL.L) won an appeal against a historic ruling requiring accelerated carbon reduction efforts, dealing a blow to activists using legal channels to pursue climate action. The Hague Appeals Court said Shell was responsible for reducing greenhouse gas emissions to protect people from global warming. However, it dismissed the 2021 ruling, which ordered Shell to reduce absolute carbon emissions by 45% by 2030 compared to 2019, including those caused by product usage.

 

Price Behavior

Crude oil prices rose on Friday, consolidating gains after a week of geopolitical tensions in the Russia-Ukraine war and the Middle East. The market is attentive to signals about what will happen next in Ukraine, as the war seems to be reaching a crucial phase after passing its 1,000th day earlier this week.

 

Brent and WTI crudes closed Friday, November 22, at $75.17/bbl and $71.24/bbl, respectively, gaining almost 6% compared to the previous week.

 

VENEZUELA

The Regime Seeks Survival  Loopholes

 

In what some analysts described as a late decision, US Secretary of State Antony Blinken confirmed that, based on incontrovertible evidence, they recognize Edmundo González Urrutia as Venezuela's president-elect. Italy and Ecuador joined the countries, making this recognition. Though not yet the expected avalanche of support, these are signals of the growing isolation of the Venezuelan regime after the July 28 electoral fraud.

 

Another focus of international pressure on the regime is the Public Office of Victim Defense (OPCV) of the International Criminal Court (ICC), which strongly questioned prosecutor Karim Khan's lack of progress in investigating crimes against humanity committed in Venezuela. The OPCV warned that "victims have been waiting too long for justice and have the right to swift and fair proceedings.”

 

The regime can reach an understanding with the Trump administration. The Washington Post reports that the government has already contacted Trump's team, hoping to convince them that solving illegal immigration—which Trump has made a crucial agenda point—involves establishing a comprehensive Venezuelan repatriation system. The regime argues that maintaining licenses, lifting sanctions, and reducing the migrant flow would stabilize Venezuela economically.

 

The regime seeks to remain in power for a "prudential" time and receive recognition from the Maduro administration. While it sounds like science fiction, regime officials are trying to push this based on past success in obtaining real concessions from the US administration in exchange for promises. This is easier proposed than achieved, especially with the people Trump has nominated to top security and foreign policy positions.

 

To make matters worse, the US House of Representatives approved a bipartisan law called BOLIVAR (Banning Operations and Leases with the Illegitimate Venezuelan Authoritarian Regime Act), which prohibits transactions between the US government, American citizens, and the Maduro regime. The law will now be sent to the Senate for discussion and approval.

 

This "BOLIVAR Law" has stirred significant controversy in the National Assembly, generating a "Simón Bolívar" bill proposal to permanently politically disqualify Venezuelans the regime considers have attempted against the constitution, including requesting sanctions.

 

The economic situation continues in therapy due to currency scarcity. The official exchange rate rose above 42 BS/$, pushing the parallel market rate toward 56 Bs/$. With hydrocarbon sales income relatively constant before the Muscar accident, public spending had to be cut again, and liquidity was limited through banking, resulting in consumption reduction, economic growth reduction, and inflation increase.

 

Thus, Christmas 2024 doesn't promise traditional increases in public spending, consumption, and bonuses, at least for most of the country without access to currency. One way to summarize it in a sentence is that the Venezuelan economy is moving from formal economic activity to informal and generally from a partially market economy to an economy of controls and straitjackets.

 

Petroleum Operations

The Muscar plant accident last week continues to affect the hydrocarbon industry significantly. Its effects were felt practically nationwide, from Margarita Island, Jose, and Anaco in the east to the center and even the western part of the country.

 

If manageable with existing infrastructure, recovering crude production in northern Monagas state would mean flaring all the rich associated gas. A drop in light oil production affects the ability to dilute Belt crude, requiring selective closure of extra-heavy oil production. Jose’s petrochemical plants have been stopped due to a gas shortage since the accident. Liquid extraction and fractionation plants are not receiving feed. Consequently, once inventory is exhausted, gas cylinders will become scarce in the domestic market.

 

Since Thursday, news has spread that gas has arrived in Margarita and Jose. However, we can only think this means increased gas production in the Anaco area, which must be limited or affect the gas supply to the country's center. Moreover, Margarita generation plants were initially designed as dual (gas and diesel), but we are still determining if this is true.

 

Reports on Jose crude upgraders indicate only the PetroPiar plant is operational and capable of processing around 100 Mbpd of Belt crude; today, this is the only existing mechanism to reduce diluent needs. Merey 16 mixing plants are functioning partially.

 

Technicians analyzing the Muscar situation and associated installations agree that repair will require months of arduous work.

 

Average national production reduced this last week to 746 Mbpd due to closures and diluent scarcity. Regional production distribution:

• West:                                    199 (Chevron 91)

• East:                                     105

• Orinoco Belt:                         442 (Chevron 106)

• TOTAL:                                  746 (Chevron 197)

 

Refining levels reached 198 Mbpd of crude and intermediate products, with 68 Mbpd gasoline and 70 Mbpd diesel yield. CRP yield information has been difficult to verify; some sources claim gasoline yield is higher than 68 MBPD mentioned and a lower diesel yield. In any case, it is a domestic market with a structural deficit.

 

Export programming in the country's east remains undefined until produced segregation volumes stabilize. Chevron exports will see no volume changes, though some Merey crude might end up as DCO.

 

TRUMP AND CHINA, CHANCE AND UNCERTAINTY

  El Taladro Azul  Published  Originally in Spanish in  LA GRAN ALDEA

M. Juan Szabo and Luis A. Pacheco 

 

The future international and economic policy to be carried out by President-elect Donald Trump generates more questions than answers. On the one hand, a deregulation of the American economy is expected, promising greater dynamism and should point toward increased demand, but there is also talk of greater domestic supply if “drill baby drill” materializes. 

 

In China, the government's stimulus measures continue to fall short of their expected effect and create uncertainty among those who still consider the Asian giant as the main driver of demand. Forecasts of reduced growth in oil demand over the next 14 months, by both the IEA and OPEC, also weigh on the market.

 

This accumulation of uncertainties keeps the energy market in a pessimistic sentiment. Not even the sharp falls in gasoline and diesel inventories in the U.S., or the dark clouds in the Middle East, managed to mitigate the bearish sentiment in the oil market.

 

Geopolitics

 

In the U.S. elections, with few votes still to be counted, it is now firm that the Republican Party will control both chambers of Congress, which will facilitate the new president's management unless internal fractures occur: the sessions to approve cabinet nominations will be the first test.

 

Now that the Biden administration is a matter for historians, in boardrooms and government offices worldwide, people are trying to understand what Donald Trump's victory means for their company or country. Last week, we tried to give a preliminary interpretation of this situation in the energy sector, but since then, Trump has made some high-profile designations that could well be designated as “Trump's Hawks,” which complements our initial evaluation.

 

The designations include Marco Rubio, Matt Gaetz, Elton Musk, Pete Hegseth, Mike Waltz, and Chris Wright, among others. These nominations seem to be marked by two main characteristics: unquestionable commitment to the new president's vision and the willingness to “shake up” Washington bureaucracies and international relations; we'll see if these revolutions are real or just a return to Trump 1.0.

 

The nomination of Chris Wright for the Department of Energy (DOE) is particularly striking. Wright, an engineer and oil services company executive, has fiercely criticized the existence of a climate crisis and the transition to renewable energy sources. While Wright doesn't dispute the existence of climate change, he has argued that policies aimed at reducing climate change impact are misguided and alarmist.

 

On the Russia/Ukraine war front, amid expectations that the U.S. president-elect might pressure both sides to end the conflict, both countries have carried out their largest drone attacks since the war began, particularly on energy installations. Russia is trying to consolidate its territorial gains to strengthen its position in any negotiation.

 

Meanwhile, in the Middle East, there is widespread speculation about what a second Trump presidency will mean for the region: unlike fears expressed in Europe about Trump's unpredictability, Gulf Arab countries tend to see him as a force for stability. There are rumors that the new U.S. administration would welcome Israeli activity that would hinder Iran's nuclear development. The nomination of Mike Huckabee as U.S. ambassador to Israel seems to reaffirm the rapprochement between the two countries.

 

On the other hand, leaders from dozens of Arab and Islamic nations met in Riyadh, the Saudi capital, for a summit. Saudi Arabia has tried to pressure the United States and Israel to end hostilities in Gaza, and Crown Prince Mohammed bin Salman, the kingdom's “de facto” ruler, gathered Arab and Muslim leaders to reinforce that message.

 

In Baku, Azerbaijan's capital, the COP 29 climate conference is taking place. World leaders (with notable absences) and negotiators are trying to establish a new funding goal to cover the trillion-dollar costs of helping low-income nations adapt to climate change while meeting emission reduction targets. Developed countries recognize that developing countries face climate investment needs amounting to trillions of dollars.

 

However, they haven't yet established a specific target for international financial support because there's one thing on everyone's mind in Baku: How will President Trump's return to the White House affect the fight against global warming? After all, he will probably reformulate the environmental policies of the world's largest economy and second-largest greenhouse gas (GHG) emitter. Therefore, the cap and financing mechanisms and details for implementing an efficient carbon credit market remain to be defined.

 

Major European oil and gas companies BP, Equinor, Shell, and TotalEnergies have committed to making a joint investment of $500 million in the coming years to help ensure access to affordable, reliable, sustainable, and modern energy for all.

 

This joint investment commitment is part of major energy companies' efforts to support promising and high-impact projects, mainly in sub-Saharan Africa, and South and Southeast Asia, in line with COP 29 considerations. The projects seek to help millions of people from disadvantaged communities gain access to electricity and other sustainable energy sources.

 

COP 29 is the second consecutive climate conference held in an oil-producing country, which has raised criticism that this forum has lost its usefulness.

 

Russia is considering another gas pipeline to China, this time through Kazakhstan, capable of transporting up to 1.1 TCF of natural gas per year. The plan, announced by Deputy Prime Minister Alexander Novak, comes at a time when Moscow is turning strongly toward Beijing, to which it has already sent 1.4 TCF of gas this year. Now that Europe is firmly out of sight, China is Putin's star energy customer.

 

Gas demand in China is increasing by more than 9% year-over-year. This demand is generated by urban heating, industry, and a significant push to replace diesel trucks with LNG. By 2040, natural gas demand in China is expected to surge by more than 50%, according to Julianne Geiger of Oilprice.com.

 

Fundamentals

 

Trump's commitment to economic deregulation could be good for growth. One cannot say the same about his plan for mass deportations of irregular immigrants and radical tariffs, especially on China. We are persuaded that when these intentions move to the implementation phase, the realities of international trade and the interests of those who supported candidate Trump will shape the process.

 

In the short term, the combination of encouraging domestic production while enforcing sanctions on Iran and Venezuela will result in restricted oil supply; although, in the medium term, this trend could reverse due to increased U.S. production and the dismantling of sanctions on Russia, in case of a negotiated resolution to the war.

 

For now, U.S. production remains relatively stable, around thirteen million barrels per day (13.4 according to the EIA), but with a tendency to decline due to the stable drilling activity. This week, according to Baker Hughes, another rig was added to the inactive list.

 

With its eye on inflation figures and, surely, uncertainty about the upcoming fiscal and tariff policy, the Federal Reserve (FED) is becoming more cautious about the scope of further interest rate easing. This was indicated by Jerome Powell, FED Chairman, at a conference in Dallas, saying: “The U.S. economy is not sending any signal that we should rush to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”

 

OPEC has cut its global demand growth forecasts for 2024 and 2025 for the fourth consecutive month, mainly due to reduced consumption in China, to 450 MBPD from 580 MBPD in last month's monthly report, so that demand growth in 2024 is estimated at 1.82 MMbpd.

 

Meanwhile, the International Energy Agency (IEA) predicts considerably different demands and supplies: global oil supply will exceed demand in 2025, even if OPEC+ cuts remain in place, due to growing production from the U.S. and other producers outside the OPEC+ sphere. According to the IEA, the prospect of a supply surplus of more than 1.0 MMbpd, slightly more than 1% of global production, would directly affect OPEC+ in its plan to begin increasing production.

 

The divergence between the two sources (IEA and OPEC) is not surprising; on the contrary, it has become common, as each remains rooted in their respective interests. The notable difference in forecasted demands is undoubtedly due to the estimation of timing and magnitude of demand reduction due to Chinese economic problems. Also mentioned is the advancement of renewable energies replacing fossil fuel use, especially in China, due to the rapid deployment of clean energy transport technologies, such as electric vehicles, LNG-powered trucks, and high-speed railways, according to the Paris-based agency.

 

The advancement of alternative energies doesn't seem to meet the extremes desired and predicted by the IEA, judging by the increase in GHG emissions during 2024. Greater use of coal, precisely in China, the issues with electric vehicles (little progress in electrification networks), and greater energy requirements for data processing centers to take advantage of AI are the most important obstacles to the speed of replacement.

 

The IEA maintained unchanged its oil demand growth forecast for 2025 at 990 MBPD. At the same time, it expects non-OPEC+ countries to increase supply by 1.5 million bpd, driven by the U.S., Canada, Guyana, and Argentina, more than the demand growth rate.

 

Next year's surplus, according to IEA forecasts, could make it difficult for OPEC+ to reopen its shut-in production. Earlier this month, OPEC+ again postponed a plan to begin easing production cuts amid falling prices.

 

Regarding global supply, an analysis of the increases announced by different producing countries and of expected production declines due to depletion in some cases or geopolitical limitations in others gives a different result than the IEA's. The net production increase that would reach the market is illustrated in the graph below and calls into question the forecast of overproduction of more than 1.0 MMBPD during 2025. On the contrary, the analysis suggests that it barely meets the IEA's demand forecast and falls short of OPEC's forecast.

Source: Public data and own calculations

 

Of particular concern is the prospect of a prolonged trade war with China, which would likely lead to another year of tepid demand growth from the world's largest oil importer, whose economy has shown signs of weakness throughout this year, causing continuous reductions in refining runs at marginal refineries, commonly known as “teapots.” Indeed, refinery operating rates in China fell in October for the seventh consecutive month, losing 4.6% year-on-year, according to data from the country's statistics agency, cited by Reuters.

 

According to the Reuters report, a Chinese consultancy said the decline was due to maintenance closures and bankruptcies at three Sinochem-owned refineries. Additionally, independent refineries, the so-called “teapots,” operated at much lower rates than average in October, around 58.7% compared to 77% a year ago.

 

Price Behavior

 

The oil market was again surrounded by a pack of discouraging news that didn't even allow it to interpret the positive in the unusual fall in gasoline and distillate inventories in the U.S., reported by the EIA.

 

The crude market was trending downward on Friday and headed for another weekly decline, after struggling during the week to recover from losses suffered following Trump's electoral victory. This despite expectations that the Trump administration will push for stricter enforcement of oil sanctions against Iran and Venezuela, particularly with Marco Rubio's nomination as Secretary of State candidate. But this effect has not been included in market considerations for now.

 

Concerns about a trade war using import tariffs continued to weigh on confidence, along with the rising U.S. dollar index (DXY), which touched annual highs of 107 points, and what has already become a backdrop, the weakness of the Chinese economy.

 

As things stand, Brent and WTI crude oils, at the close of trading on Friday, November 15, were trading at $71.04/bbl and $67.02/bbl respectively, closing the week with a loss of around 4% compared to the previous week.

 

VENEZUELA

Rubio, More Than Just a Town in the Andes

 

Senator Marco Rubio, who competed with Trump in the 2016 Republican Party primaries, and whom Trump dubbed “Little Marco,” now transforms into the new president's right hand as Secretary of State of the incoming administration. Rubio, who has always expressed strong rejection of “Chavismo”, will be, from the Venezuelan perspective, a formidable adversary. The senator will be accompanied by other “hawks” in defense and national security.

 

In Caracas, the appointments were heavily commented on by regime tweeters and by Interior Minister Diosdado Cabello, who expressed his hope that Marco Rubio wouldn't last in the position due to his aggressive nature. In any case, beyond Rubio’s nomination, it's a signal of the treatment to be expected from the new administration regarding relations with Venezuela, electoral fraud, and the extensive corruption framework of the regime; it seems clear there will be considerable noise in the months to come.

 

To try to dilute the problem of those illegally detained following protests after the July 28 electoral fraud, Maduro ordered the review of about 200 cases in which “there could have been procedural errors.” With obedient speed, the attorney general is leading the reviews. Indeed, releases began over the weekend, all intending to mitigate investigations into the regime's human rights violations. According to the Penal Forum, as of 7:00 pm on November 16, the release of 107 political prisoners has been verified. This is just additional evidence of the politicization of justice that threatens the entire population.

 

Relations with Brazil had some détente. Lula indicated that Maduro was Venezuela's issue, not Brazil's. The regime celebrated Lula's new position; however, it was disappointed when it found that Maduro was not on the special guest list for the Group of Twenty (G20) summit hosted by Brazil. Most Latin American heads of government are invited.

 

The real economy continues to unravel the stitches that the vice president's economic group has managed to make to try to contain inflation. Public spending continues to fall at the pace of declining SENIAT collections and oil export income despite Chevron fulfilling all its plans. The placement of the remaining oil, added to the weakness in prices, has proven quite challenging, aggravated by the lack of transparency in the state company's collection process.

 

Thus, despite the bounded flotation of the official exchange rate, now close to Bs45/$, the gap with the parallel currency market has proved untamable. It narrows with BCV interventions but quickly takes flight again and returns to +/- 20%. This situation has stirred up the inflation rate, which, according to the Venezuelan Finance Observatory, nearly tripled its previous value in October, as we mentioned last week (from 3.4% to 9.6%). As expected, the BCV stopped publishing the index, only doing so when it decreased.

 

Oil Operations

 

Last weekend, two major accidents occurred in hydrocarbon handling activities. The larger one was an explosion at the Muscar gas plant in Punta de Mata, Monagas State. The explosion and subsequent fire severely damaged the facility, which will require considerable time to repair. The effect of the accident has rippled as far as Margarita Island, where they have had to ration electricity supply due to lack of gas for generation. Petrochemical plants and gas handling facilities in the Jose area have also been affected. Additionally, the production shutdown is impacting the ability to dilute heavy crude from the Orinoco Belt to Merey 16 grade specifications and limiting feed to the Puerto la Cruz refinery.

 

The other event was at the PetroCedeño Upgrading plant, now 100% PDVSA-owned after the withdrawal of the Indian company, Jindal, as a partner. Apparently, in an attempt to reactivate delayed coking at this complex, a fire broke out that damaged the plant and will require major work to repair.

 

Regarding accident risks, The National Academy of Engineering and Habitat warned about the risk of a rupture of what is called the “Lake Maracaibo containment dike”, which protects the Eastern Coast of Lake Maracaibo (Cabimas, Tía Juana, Ciudad Ojeda, Lagunillas, and Bachaquero) from potential flooding. Subsidence of the subsoil after a century of oil production, coupled with the presence of active geological faults, creates a risky combination that requires continuous and active monitoring.

 

The Academy reports that the installed seismological network has been inactive for about 15 years, and the dike monitoring system is inoperative. It calls on PDVSA's Dikes and Drainage department and other relevant agencies to inform all citizens, particularly the inhabitants of the area, about actions taken and to be taken to minimize risks in the area. This area, because of its characteristics, should be classified as highly vulnerable.

 

National production decreased to an average for this last week of seven hundred and fifty-four thousand barrels per day (754 Mbpd) due to shutdowns and resulting diluent shortages. The regional distribution of production is shown below:

 

• West                                    198 (Chevron 91)

• East                                     106

• Orinoco Belt                         450 (Chevron 106)

• TOTAL                                 754 (Chevron 197)

 

Chevron began drilling the last well of its campaign for 2024. The company is mobilizing the rig to the last well, of the seventeen they plan to drill.

 

Refining levels reached 184 Mbpd of crude and intermediate products, with a gasoline yield of 61 Mbpd and 74 Mbpd of diesel, maintaining gasoline rationing in large regions of the country.

 

Export programming in the eastern part of the country will have to be recalculated to incorporate the effects of the Muscar accident, partially addressed with inventories. A preliminary estimate indicates that crude exports for November could reach 580 MBPD.

 

CITGO

 

On November 14, CITGO Petroleum Corp., PDVSA's refining subsidiary in the U.S., announced its financial and operational results for the third quarter of 2024, which continue to show a healthy corporation capable of navigating the natural storms of the refining business. In summary:

 

·      Total processing of 811 Mbpd, and an average crude processing capacity utilization rate of 96%.

·      The higher processing of crude and feedstocks during the quarter, after completing scheduled maintenance during the second quarter, contributed to achieving a third-quarter net income of 66 million dollars, EBITDA of 281 million dollars, and adjusted EBITDA of 290 million dollars, compared to a net loss of 25 million dollars, EBITDA of 162 million dollars, and adjusted EBITDA of 149 million dollars in the second quarter of 2024.

·      End-of-quarter liquidity was $3.6 billion, including the full availability of CITGO's $500 million accounts receivable securitization facility.

·      Scheduled plant shutdown and maintenance activities were successfully executed.

 

Although CITGO management made no explicit mention of the status of claims by creditors of the republic and PDVSA (Crystallex et al.), we understand these continue to be bogged down in Delaware courts. In the case of the so-called PDVSA 2020 bonds, which follow a separate lawsuit in New York, OFAC extended asset protection (General License 5Q) until March 7, 2025.